J.P. Morgan is seeking to patent “quantum computing-assisted portfolio selection.” Essentially, the system instructs a quantum computer to come up with the most “optimal portfolio selection” for a user based on their parameters for risk and reward, writes Nat Rubio-Licht from The Daily Upside for The Motley Fool.
First, an investor gives this system asset selection parameters for their portfolio, such as the returns they expect or the volatility they’re comfortable with. The classical computing system then picks assets based on these initial parameters, and sets upper and lower risk boundaries, or the highest and lowest limits that any given asset in a portfolio can go.
J.P. Morgan’s system feeds these asset selections to a quantum computer to optimize the portfolio. Meanwhile, a classical computer finds the “objective functional value,” or how well the portfolio fits in with the investor’s desires, of the current selection of assets. That objective functional value is then used to adjust the higher risk limit of the portfolio. Finally, the quantum computer runs another calculation to refine its asset selection again, using that new higher risk limit.
After going through these calculations, the computer then spits out the best possible stock portfolio selection for the user.