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.
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.
Currency arbitrage (CA) involves trading currencies in cycles to exploit discrepancies in market valuations. Quadratic unconstrained binary optimization (QUBO) involves minimizing a quadratic cost (energy) function of binary variables. Previous works have explored the use of QUBO to solve CA problems. We build on these previous works by introducing realistic constraints such as beginning cycles from a held currency and accounting for per-transaction trading fees. We show that this formulation requires fewer logical variables (qubits) than previous QUBO encodings in the literature. We derive provably sufficient penalty weights for its constraint terms. We also introduce an exact anchor-gauge reweighting of the exchange rates that compresses the QUBO coefficient range from the rate scale to the arbitrage scale, addressing the finite analog precision of annealing hardware. We demonstrate the efficacy of this formulation using classical simulated annealing against an exact Held-Karp baseline on the same CPU and show that it can effectively find profitable cycles and account for trading fees. Finally, we benchmark faithful implementations of five prior QUBO encodings at matched sampler budgets and show that the proposed encoding is the only one to recover the exact fee-adjusted optimum.
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.
Large-scale quantum networks depend on the efficient distribution of entangled pairs between distant nodes. However, state-of-the-art solutions rely on restrictive operational assumptions, incur prohibitive computational complexity, and optimize metrics misaligned with application needs. This paper addresses the entanglement distribution problem introducing four pivotal advances. First, since the primary application of quantum communication is private information transmission, we derive the Ensemble Capacity, a novel metric that quantifies the private classical information enabled by entanglement distribution. Second, we propose a generalized formulation of the Entanglement Distribution Problem that allows arbitrary sequencing of entanglement swapping and purification, removing the structural restrictions of prior models. Third, to navigate the resulting combinatorial space, we introduce a dynamic programming-based hypergraph generation algorithm that preserves exact, continuous fidelities, avoiding quantization, while pruning sub-optimal sequences in advance. Finally, we integrate these solutions into CODE, a two-tier orchestration framework enabling near-real-time network operation. Extensive evaluations show that our approach achieves higher private information capacity and significantly lower computational complexity than existing solutions, while meeting the sub-second latency requirements of dynamic quantum network operation.
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.
The increasing complexity of financial markets has heightened the demand for advanced computational methods capable of optimizing portfolios under multi-dimensional constraints involving risk, return, diversification, and liquidity. Traditional optimization frameworks, such as mean-variance analysis and heuristic meta-optimization, are limited by their scalability and sensitivity to non-convex, high-dimensional data structures. This study explores the application of quantum algorithms to portfolio optimization, demonstrating how Quantum Approximate Optimization Algorithm (QAOA), Quantum Annealing, and Variational Quantum Eigensolver (VQE) can address computational bottlenecks inherent in classical approaches. Quantum computation offers the potential to encode complex financial systems as Hamiltonian functions, allowing parallel exploration of vast solution spaces through superposition and entanglement. This enables faster convergence toward optimal portfolio allocations while simultaneously accounting for multi-factor correlations and dynamic market conditions. The research further investigates the role of hybrid quantum–classical optimization pipelines, in which quantum solvers perform core optimization tasks while classical systems manage data preprocessing and constraint validation. Empirical modeling and simulation indicate that quantum-based approaches can outperform conventional methods in risk-adjusted return optimization, efficient frontier computation, and real-time portfolio rebalancing. By bridging the gap between quantum computing and financial engineering, this study contributes to the development of next-generation financial analytics systems, aligning with the broader goal of achieving more adaptive, transparent, and data-resilient financial decision-making.