HQFS: Hybrid Quantum Classical Financial Security with VQC Forecasting, QUBO Annealing, and Audit-Ready Post-Quantum Signing

TL;DR

HQFS is a hybrid quantum-classical pipeline for financial decision-making that improves prediction accuracy, decision quality, and auditability by integrating quantum forecasting, QUBO optimization, and post-quantum signing.

Contribution

It introduces a practical hybrid pipeline combining quantum forecasting, QUBO-based optimization, and secure signing for financial risk systems, enhancing accuracy and auditability.

Findings

Reduces return prediction error by 7.8%

Improves Sharpe ratio by 9.4%

Cuts average solve time by 28%

Abstract

Here's the corrected paragraph with all punctuation and formatting issues fixed: Financial risk systems usually follow a two-step routine: a model predicts return or risk, and then an optimizer makes a decision such as a portfolio rebalance. In practice, this split can break under real constraints. The prediction model may look good, but the final decision can be unstable when the market shifts, when discrete constraints are added (lot sizes, caps), or when the optimization becomes slow for larger asset sets. Also, regulated settings need a clear audit trail that links each decision to the exact model state and inputs. We present HQFS, a practical hybrid pipeline that connects forecasting, discrete risk optimization, and auditability in one flow. First, HQFS learns next-step return and a volatility proxy using a variational quantum circuit (VQC) with a small classical head. Second, HQFS converts the risk-return objective and constraints into a QUBO and solves it with quantum annealing when available, while keeping a compatible classical QUBO solver as a fallback for deployment. Third, HQFS signs each rebalance output using a post-quantum signature so the allocation can be verified later without trusting the runtime environment. On our market dataset study, HQFS reduces return prediction error by 7.8% and volatility prediction error by 6.1% versus a tuned classical baseline. For the decision layer, HQFS improves out-of-sample Sharpe by 9.4% and lowers maximum drawdown by 11.7%. The QUBO solve stage also cuts average solve time by 28% compared to a mixed-integer baseline under the same constraints, while producing fully traceable, signed allocation records.