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Register a new userTowards Prediction of Financial Crashes with a D-Wave Quantum Computer
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Prediction of financial crashes in a complex financial network is known to be an NP-hard problem, which means that no known algorithm can guarantee to find optimal solutions efficiently. We experimentally explore a novel approach to this problem by using a D-Wave quantum computer, benchmarking its performance for attaining financial equilibrium. To be specific, the equilibrium condition of a nonlinear financial model is embedded into a higher-order unconstrained binary optimization (HUBO) problem, which is then transformed to a spin-$1/2$ Hamiltonian with at most two-qubit interactions. The problem is thus equivalent to finding the ground state of an interacting spin Hamiltonian, which can be approximated with a quantum annealer. The size of the simulation is mainly constrained by the necessity of a large quantity of physical qubits representing a logical qubit with the correct connectivity. Our experiment paves the way to codify this quantitative macroeconomics problem in quantum computers.
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Pricing interest-rate financial derivatives is a major problem in finance, in which it is crucial to accurately reproduce the time-evolution of interest rates. Several stochastic dynamics have been proposed in the literature to model either the instantaneous interest rate or the instantaneous forward rate. A successful approach to model the latter is the celebrated Heath-Jarrow-Morton framework, in which its dynamics is entirely specified by volatility factors. On its multifactor version, this model considers several noisy components to capture at best the dynamics of several time-maturing forward rates. However, as no general analytical solution is available, there is a trade-off between the number of noisy factors considered and the computational time to perform a numerical simulation. Here, we employ the quantum principal component analysis to reduce the number of noisy factors required to accurately simulate the time evolution of several time-maturing forward rates. The principal components are experimentally estimated with the $5$-qubit IBMQX2 quantum computer for $2times 2$ and $3times 3$ cross-correlation matrices, which are based on historical data for two and three time-maturing forward rates. This manuscript is a first step towards the design of a general quantum algorithm to fully simulate on quantum computers the Heath-Jarrow-Morton model for pricing interest-rate financial derivatives. It shows indeed that practical applications of quantum computers in finance will be achievable in the near future.
A key problem in financial mathematics is the forecasting of financial crashes: if we perturb asset prices, will financial institutions fail on a massive scale? This was recently shown to be a computationally intractable (NP-hard) problem. Financial crashes are inherently difficult to predict, even for a regulator which has complete information about the financial system. In this paper we show how this problem can be handled by quantum annealers. More specifically, we map the equilibrium condition of a toy-model financial network to the ground-state problem of a spin-1/2 quantum Hamiltonian with 2-body interactions, i.e., a quadratic unconstrained binary optimization (QUBO) problem. The equilibrium market values of institutions after a sudden shock to the network can then be calculated via adiabatic quantum computation and, more generically, by quantum annealers. Our procedure could be implemented on near-term quantum processors, thus providing a potentially more efficient way to assess financial equilibrium and predict financial crashes.
We propose that large stock market crashes are analogous to critical points studied in statistical physics with log-periodic correction to scaling. We extend our previous renormalization group model of stock market prices prior to and after crashes [D. Sornette et al., J.Phys.I France 6, 167, 1996] by including the first non-linear correction. This predicts the existence of a log-frequency shift over time in the log-periodic oscillations prior to a crash. This is tested on the two largest historical crashes of the century, the october 1929 and october 1987 crashes, by fitting the stock market index over an interval of 8 years prior to the crashes. The good quality of the fits, as well as the consistency of the parameter values obtained from the two crashes, promote the theory that crashes have their origin in the collective ``crowd behavior of many interacting agents.
We present an experimental realization of a measurement-based adaptation protocol with quantum reinforcement learning in a Rigetti cloud quantum computer. The experiment in this few-qubit superconducting chip faithfully reproduces the theoretical proposal, setting the first steps towards a semiautonomous quantum agent. This experiment paves the way towards quantum reinforcement learning with superconducting circuits.
We implement several quantum algorithms in real five-qubit superconducting quantum processor IBMqx4 to perform quantum computation of the dynamics of spin-1/2 particles interacting directly and indirectly through the boson field. Particularly, we focus on effects arising due to the presence of entanglement in the initial state of the system. The dynamics is implemented in a digital way using Trotter expansion of evolution operator. Our results demonstrate that dynamics in our modeling based on real device is governed by quantum interference effects being highly sensitive to phase parameters of the initial state. We also discuss limitations of our approach due to the device imperfection as well as possible scaling towards larger systems.
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