Crypto-currency markets are known to exhibit inefficiencies, which presents opportunities for profitable cyclic transactions or arbitrage, where one currency is traded for another in a way that results in a net gain without incurring any risk. Quantum computing has shown promise in financial applications, particularly in resolving optimization problems like arbitrage. In this paper, we introduce a differential evolution (DE) optimization algorithm for Variational Quantum Eigensolver (VQE) using Qiskit framework. We elucidate the application of crypto-currency arbitrage using different VQE optimizers. Our findings indicate that the proposed DE-based method effectively converges to the optimal solution in scenarios where other commonly used optimizers, such as COBYLA, struggle to find the global minimum. We further test this procedure's feasibility on IBM's real quantum machines up to 127 qubits. With a scenario of three currencies, the algorithm converged in 417 steps over a 12 hour period on the "ibm_geneva" machine. These results suggest the potential to achieve a quantum advantage in solving increasingly complex problems.
Crypto-currency markets are known to exhibit inefficiencies, which presents opportunities for profitable cyclic transactions or arbitrage, where one currency is traded for another in a way that results in a net gain without incurring any risk. Quantum computing has shown promise in financial applications, particularly in resolving optimization problems like arbitrage. In this paper, we introduce a differential evolution (DE) optimization algorithm for Variational Quantum Eigensolver (VQE) using Qiskit framework. We elucidate the application of crypto-currency arbitrage using different VQE optimizers. Our findings indicate that the proposed DE-based method effectively converges to the optimal solution in scenarios where other commonly used optimizers, such as COBYLA, struggle to find the global minimum. We further test this procedure's feasibility on IBM's real quantum machines up to 127 qubits. With a scenario of three currencies, the algorithm converged in 417 steps over a 12 hour period on the "ibm_geneva" machine. These results suggest the potential to achieve a quantum advantage in solving increasingly complex problems.
Variational Quantum Algorithms (VQAs) are among the most promising NISQ-era algorithms for harnessing quantum computing in diverse fields. However, the underlying optimization processes within these algorithms usually deal with local minima and barren plateau problems, preventing them from scaling efficiently. Our goal in this paper is to study alternative optimization methods that can avoid or reduce the effect of these problems. To this end, we propose to apply the Differential Evolution (DE) algorithm to VQAs optimizations. Our hypothesis is that DE is resilient to vanishing gradients and local minima for two main reasons: (1) it does not depend on gradients, and (2) its mutation and recombination schemes allow DE to continue evolving even in these cases. To demonstrate the performance of our approach, first, we use a robust local minima problem to compare state-of-the-art local optimizers (SLSQP, COBYLA, L-BFGS-B and SPSA) against DE using the Variational Quantum Eigensolver algorithm. Our results show that DE always outperforms local optimizers. In particular, in exact simulations of a 1D Ising chain with 14 qubits, DE achieves the ground state with a 100% success rate, while local optimizers only exhibit around 40%. We also show that combining DE with local optimizers increases the accuracy of the energy estimation once avoiding local minima. Finally, we demonstrate how our results can be extended to more complex problems by studying DE performance in a 1D Hubbard model.
Detecting arbitrage opportunities in the foreign exchange market is computationally challenging, as the problem’s NP-completeness causes complexity to grow rapidly with the size of the currency network. While previous studies often relied on simplified models that overlook real-world trading frictions & microstructures, this paper explicitly incorporates the real-world elements: bid and ask rates, into the QUBO formulation and evaluates performance under QAOA with various entanglement strategies. Results show that a modular, graph-informed entanglement structure achieves near-optimal approximation ratios (approximately 0.999). By integrating market spread dynamics into the quantum optimization process, this work advances beyond existing arbitrage models and demonstrates the broader applicability of graph-based quantum algorithms for financial optimization.
Currency arbitrage leverages price discrepancies in currency exchange rates across different currency pairs to gain risk-free profits. It involves multiple trading, where short-lived price discrepancies require real-time, high-speed processing of vast solution space, posing challenges for classical computing. In this work, we formulate an enhanced mathematical model for the currency arbitrage problem by adding simple cycle preservation constraints, which guarantee trading cycle validity and eliminate redundant or infeasible substructures. To solve this model, we use and benchmark various solvers, including Quantum Annealing (QA), gate-based quantum approaches such as Variational Quantum Algorithm with Adaptive Cost Encoding (ACE), as well as classical solvers such as Gurobi and classical meta heuristics such as Tabu Search (TS). We propose a classical multi-bit swap post-processing to improve the solution generated by ACE. Using real-world currency exchange data, we compare these methods in terms of both arbitrage profit and execution time, the two key performance metrics. Our results give insight into the current capabilities and limitations of quantum methods for real-time financial use cases.
In finance, portfolio optimization aims at finding optimal investments maximizing a trade-off between return and risks, given some constraints. Classical formulations of this quadratic optimization problem have exact or heuristic solutions, but the complexity scales up as the market dimension increases. Recently, researchers are evaluating the possibility of facing the complexity scaling issue by employing quantum computing. In this paper, the problem is solved using the Variational Quantum Eigensolver (VQE), which in principle is very efficient. The main outcome of this work consists of the definition of the best hyperparameters to set, in order to perform Portfolio Optimization by VQE on real quantum computers. In particular, a quite general formulation of the constrained quadratic problem is considered, which is translated into Quadratic Unconstrained Binary Optimization by the binary encoding of variables and by including constraints in the objective function. This is converted into a set of quantum operators (Ising Hamiltonian), whose minimum eigenvalue is found by VQE and corresponds to the optimal solution. In this work, different hyperparameters of the procedure are analyzed, including different ansatzes and optimization methods by means of experiments on both simulators and real quantum computers. Experiments show that there is a strong dependence of solutions quality on the sufficiently sized quantum computer and correct hyperparameters, and with the best choices, the quantum algorithm run on real quantum devices reaches solutions very close to the exact one, with a strong convergence rate towards the classical solution, even without error-mitigation techniques. Moreover, results obtained on different real quantum devices, for a small-sized example, show the relation between the quality of the solution and the dimension of the quantum processor. Evidences allow concluding which are the best ways to solve real Portfolio Optimization problems by VQE on quantum devices, and confirm the possibility to solve them with higher efficiency, with respect to existing methods, as soon as the size of quantum hardware will be sufficiently high.
The possibility of adopting quantum computing in the field of financial services can bring a new breakthrough in portfolio management since the optimization of this method requires large numbers for the solution that exceed the capabilities of classical computing algorithms. This study focuses on using a hybrid quantum-classical computational method known as the Variational Quantum Eigensolver (VQE) in optimizing portfolio selection. The VQE aims at finding the best allocation of the portfolio; the best weights that correspond to minimum risk and maximum return as predicted by the modern portfolio theory. The study assesses the suitability and speed of VQE in solving matters involving portfolio management tasks such as handling vast data and nonlinear constraints which are hard to solve through other optimization methods. Thus, under the theoretical framework of quantum computing, the study seeks to address some of the following challenges: computational time and scalability in portfolio optimization. The VQE algorithm work on different portfolio configurations; their performance in comparison with classical techniques; special attention is paid to the rate of convergence and the achievement of the optimal solution. Based on the results of this work we can conclude that there is a considerable literature on quantum finance and that this field can benefit from utilization of quantum algorithms as a tool to improve decision-making in the financial market. That is why the study proves that quantum optimization techniques, to wit VQE, can provide better solutions when it comes to portfolio management within the sphere of finance.
Portfolio optimization is a fundamental problem in quantitative finance that seeks to maximize risk-adjusted returns while managing investment risk. With the advent of quantum computing, there is growing interest in applying quantum algorithms to solve complex optimization problems. This paper presents a comprehensive comparative study of quantum and classical approaches to portfolio optimization, specifically comparing the Quantum Approximate Optimization Algorithm (QAOA), Variational Quantum Eigensolver (VQE), and classical mean-variance optimization. We evaluate these methods on both real market data and synthetic datasets with varying correlation structures. Our experimental results show that while classical methods currently outperform quantum approaches on near-term quantum devices in terms of solution quality and computational efficiency, quantum algorithms demonstrate conceptual viability and promise for future applications as quantum hardware improves. The classical method achieves optimal Sharpe ratios of 1.2-1.8, while QAOA and VQE achieve 80-95% and 75-90% of classical performance respectively. This work provides insights into the current state and future potential of quantum computing for financial optimization.