A Quantum Algorithm for Linear PDEs Arising in Finance
13 Pages Posted: 26 Dec 2019 Last revised: 5 Feb 2021
Date Written: December 5, 2019
We propose a hybrid quantum-classical algorithm, originated from quantum chemistry, to price European and Asian options in the Black-Scholes model. Our approach is based on the equivalence between the pricing partial differential equation and the Schrodinger equation in imaginary time. We devise a strategy to build a shallow quantum circuit approximation to this equation, only requiring few qubits. This constitutes a promising candidate for the application of Quantum Computing techniques (with large number of qubits affected by noise) in Quantitative Finance.
Keywords: quantum algorithms, option pricing, PDE, Schrodinger equation
JEL Classification: Q40, G20, G80
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