In this paper, we construct quantum circuits for the Black-Scholes equations, a cornerstone of financial modeling, based on a quantum algorithm that overcome the cure of high dimensionality. Our approach leverages the Schrödingerisation technique, which converts linear partial and ordinary differential equations with non-unitary dynamics into a system evolved by unitary dynamics. This is achieved through a warped phase transformation that lifts the problem into a higher-dimensional space, enabling the simulation of the Black-Scholes equation on a quantum computer. We will conduct a thorough complexity analysis to highlight the quantum advantages of our approach compared to existing algorithms. The effectiveness of our quantum circuit is substantiated through extensive numerical experiments.
In this paper, we construct quantum circuits for the Black-Scholes equations, a cornerstone of financial modeling, based on a quantum algorithm that overcome the cure of high dimensionality. Our approach leverages the Schrödingerisation technique, which converts linear partial and ordinary differential equations with non-unitary dynamics into a system evolved by unitary dynamics. This is achieved through a warped phase transformation that lifts the problem into a higher-dimensional space, enabling the simulation of the Black-Scholes equation on a quantum computer. We will conduct a thorough complexity analysis to highlight the quantum advantages of our approach compared to existing algorithms. The effectiveness of our quantum circuit is substantiated through extensive numerical experiments.
The Schrödingerisation method combined with the autonomozation technique in \cite{cjL23} converts general non-autonomous linear differential equations with non-unitary dynamics into systems of autonomous Schrödinger-type equations, via the so-called warped phase transformation that maps the equation into two higher dimension. Despite the success of Schrödingerisation techniques, they typically require the black box of the sparse Hamiltonian simulation, suitable for continuous-variable based analog quantum simulation. For qubit-based general quantum computing one needs to design the quantum circuits for practical implementation. This paper explicitly constructs a quantum circuit for Maxwell's equations with perfect electric conductor (PEC) boundary conditions and time-dependent source terms, based on Schrödingerization and autonomozation, with corresponding computational complexity analysis. Through initial value smoothing and high-order approximation to the delta function, the increase in qubits from the extra dimensions only requires minor rise in computational complexity, almost loglog1/ε where ε is the desired precision. Our analysis demonstrates that quantum algorithms constructed using Schrödingerisation exhibit polynomial acceleration in computational complexity compared to the classical Finite Difference Time Domain (FDTD) format.
Quantum computing has emerged as a promising avenue for achieving significant speedup, particularly in large-scale PDE simulations, compared to classical computing. One of the main quantum approaches involves utilizing Hamiltonian simulation, which is directly applicable only to Schrödinger-type equations. To address this limitation, Schrödingerisation techniques have been developed, employing the warped transformation to convert general linear PDEs into Schrödinger-type equations. However, despite the development of Schrödingerisation techniques, the explicit implementation of the corresponding quantum circuit for solving general PDEs remains to be designed. In this paper, we present detailed implementation of a quantum algorithm for general PDEs using Schrödingerisation techniques. We provide examples of the heat equation, and the advection equation approximated by the upwind scheme, to demonstrate the effectiveness of our approach. Complexity analysis is also carried out to demonstrate the quantum advantages of these algorithms in high dimensions over their classical counterparts.
We study a recently introduced simple method [S. Jin, N. Liu, and Y. Yu, Quantum simulation of partial differential equations via Schr\"odingerisation, arXiv:2212.13969] for solving general linear partial differential equations with quantum simulation. This method converts linear partial differential equations into a Hamiltonian system, using a simple transformation called the warped phase transformation. Here we provide a more-in-depth technical discussion and expand on this approach in a more detailed and pedagogical way. We apply this to examples of partial differential equations, including heat, convection, Fokker-Planck, linear Boltzmann, and Black-Scholes equations. This approach can also be extended to general linear partial differential equations, including the Vlasov-Fokker-Planck equation and the Liouville representation equation for nonlinear ordinary differential equations. Extension to higher-order time derivatives is also possible.
We develop a quantum algorithm for solving high-dimensional fractional Poisson equations. By applying the Caffarelli-Silvestre extension, the d-dimensional fractional equation is reformulated as a local partial differential equation in d+1 dimensions. We propose a quantum algorithm for the finite element discretization of this local problem, by capturing the steady-state of the corresponding differential equations using the Schrödingerization approach from \cite{JLY22SchrShort, JLY22SchrLong, analogPDE}. The Schrödingerization technique transforms general linear partial and ordinary differential equations into Schrödinger-type systems, making them suitable for quantum simulation. This is achieved through the warped phase transformation, which maps the equation into a higher-dimensional space. We provide detailed implementations of the method and conduct a comprehensive complexity analysis, which can show up to exponential advantage -- with respect to the inverse of the mesh size in high dimensions -- compared to its classical counterpart. Specifically, while the classical method requires O(d1/233d/2h−d−2) operations, the quantum counterpart requires O(d33d/2h−2.5) queries to the block-encoding input models, with the quantum complexity being independent of the dimension d in terms of the inverse mesh size h−1. Numerical experiments are conducted to verify the validity of our formulation.
Pricing financial derivatives, in particular European-style options at different time-maturities and strikes, means a relevant problem in finance. The dynamics describing the price of vanilla options when constant volatilities and interest rates are assumed is governed by the Black-Scholes model, a linear parabolic partial differential equation with terminal value given by the payoff of the option contract and no additional boundary conditions. Here, we present a digital quantum algorithm to solve the Black-Scholes equation on a quantum computer by mapping it to the Schr\"odinger equation. The non-Hermitian nature of the resulting Hamiltonian is solved by embedding its propagator into an enlarged Hilbert space by using only one additional ancillary qubit. Moreover, due to the choice of periodic boundary conditions, given by the definition of the discretized momentum operator, we duplicate the initial condition, which substantially improves the stability and performance of the protocol. The algorithm shows a feasible approach for using efficient Hamiltonian simulation techniques as quantum signal processing to solve the price dynamics of financial derivatives on a digital quantum computer. Our approach differs from those based on Monte Carlo integration, exclusively focused on sampling the solution assuming the dynamics is known. We report expected accuracy levels comparable to classical numerical algorithms by using nine qubits to simulate its dynamics on a fault-tolerant quantum computer, and an expected success probability of the post-selection procedure due to the embedding protocol above 60%.
The Black Scholes equation provides a fundamental model for the no arbitrage pricing of financial derivatives. After finite difference discretisation, the pricing problem can be formulated as a finite dimensional linear algebra problem involving the inverse of a non Hermitian time step matrix. Recent advances in quantum linear algebra algorithms, particularly the generalised quantum signal processing (GQSP)algorithm, enable matrix functions to be implemented through polynomial transformations of a suitable unitary or Hermitian form. In this paper, we develop a Hermitian block embedding method that enables GQSP to be applied to the two dimensional Black Scholes equation. Numerical simulations for two asset European call options are performed to evaluate the proposed approach. GQSP based solutions are benchmarked against the classical polynomial approximation with backward Euler finite difference method, showing close agreement. This indicates that the Hermitian block embedding construction accurately captures the dynamics of the original non Hermitian operator. These results demonstrate the feasibility of combining Hermitian block embeddings with GQSP for multidimensional Black Scholes problems and provide a proof of principle for applying modern quantum linear algebra techniques to option pricing.