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Solving the Optimal Trading Trajectory Problem Using a Quantum Annealer

Gili Rosenberg, Poya Haghnegahdar, Phil Goddard, Peter Carr, Kesheng John Wu, Marcos López de Prado

Published Jan 1, 2015• 17 citations
Publisher
DOI
10.2139/ssrn.2649376

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We solve a multi-period portfolio optimization problem using D-Wave Systems' quantum annealer. We derive a formulation of the problem, discuss several possible integer encoding schemes, and present numerical examples that show high success rates. The formulation incorporates transaction costs (including permanent and temporary market impact), and, significantly, the solution does not require the inversion of a covariance matrix. The discrete multi-period portfolio optimization problem we solve is significantly harder than the continuous variable problem. We present insight into how results may be improved using suitable software enhancements, and why current quantum annealing technology limits the size of problem that can be successfully solved today. The formulation presented is specifically designed to be scalable, with the expectation that as quantum annealing technology improves, larger problems will be solvable using the same techniques.
We solve a multi-period portfolio optimization problem using D-Wave Systems' quantum annealer. We derive a formulation of the problem, discuss several possible integer encoding schemes, and present numerical examples that show high success rates. The formulation incorporates transaction costs (including permanent and temporary market impact), and, significantly, the solution does not require the inversion of a covariance matrix. The discrete multi-period portfolio optimization problem we solve is significantly harder than the continuous variable problem. We present insight into how results may be improved using suitable software enhancements and why current quantum annealing technology limits the size of problem that can be successfully solved today. The formulation presented is specifically designed to be scalable, with the expectation that as quantum annealing technology improves, larger problems will be solvable using the same techniques.
Abstract This study employed a quantum-annealing framework to solve spacecraft trajectory optimization problems. Quantum annealing belongs to the field of quantum computing and is a promising technique for tackling hard binary optimization problems by employing quantum annealers. To address the optimal control of a trajectory using quantum annealing, a transcription procedure was introduced to express the problem in the binary optimization form required. The proposed procedure leverages the pseudospectral method to discretize the trajectory and represents the dynamical constraints as algebraic equality constraints at specific nodes. Subsequently, both a linearization procedure and binary representation strategy for the real-valued variables of the problem were presented, leading to the quadratic binary unconstrained optimization form. The quantum-annealing-based method was tested in the context of an interplanetary low-thrust transfer from the Earth to Mars. First, we discussed which instances of the problem, especially in terms of their dimensions, are implementable on currently available quantum annealers; then, a solution was sought by employing annealers from D-Wave systems. Solutions from hybrid solvers that combine classical and quantum resources, and fully quantum solvers were explored. The results demonstrate the validity of the transcription approach, demonstrate the ability of the hybrid solver to tackle the case-study problem, and highlight the promising features and current limitations of practical trajectory optimization with quantum annealing.