Multi-Period Integer Portfolio Optimization Using a Quantum Annealer

21 Pages Posted: 7 Oct 2015 Last revised: 14 May 2016

See all articles by Marcos Lopez de Prado

Marcos Lopez de Prado

Cornell University - Operations Research & Industrial Engineering; AQR Capital Management, LLC

Date Written: October 6, 2015

Abstract

For large portfolio managers, a sequence of single-period optimal positions is rarely multi-period optimal. In particular, transaction costs can prevent large portfolio managers from monetizing most of their forecasting power. The solution is to compute the trading trajectory that comes sufficiently close to the single-period optima while minimizing turnover costs.

Computing a trading trajectory in general terms is a NP-Complete problem. This note illustrates how quantum computers can solve this problem in the most general terms.

Keywords: Integer programming, multi-period optimization, np-complete, quantum computer, quantum annealer

JEL Classification: G0, G1, G2, G15, G24, E44

Suggested Citation

López de Prado, Marcos, Multi-Period Integer Portfolio Optimization Using a Quantum Annealer (October 6, 2015). Available at SSRN: https://ssrn.com/abstract=2670033 or http://dx.doi.org/10.2139/ssrn.2670033

Marcos López de Prado (Contact Author)

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.orie.cornell.edu

AQR Capital Management, LLC

One Greenwich Plaza
Greenwich, CT 06830
United States

HOME PAGE: http://www.aqr.com

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