EXPEDIS: An exact penalty method over discrete sets

We address the problem of minimizing a quadratic function subject to linear constraints over binary variables. We introduce the exact solution method called EXPEDIS  where the constrained problem is transformed into a max-cut instance, and then the whole machinery available for max-cut can be used to solve the transformed problem. We derive the theory in order to find a transformation in the spirit of an exact penalty method; however, we are only interested in exactness over the set of binary variables. In order to compute the maximum cut we use the solver BiqMac. Numerical results show that this algorithm can be successfully applied on various classes of problems.