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.
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.
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 Schrödinger equation describes how quantum states evolve according to the Hamiltonian of the system. For physical systems, we have it that the Hamiltonian must be a Hermitian operator to ensure unitary dynamics. For anti-Hermitian Hamiltonians, the Schrödinger equation instead models the evolution of quantum states in imaginary time. This process of imaginary time evolution has been used successfully to calculate the ground state of a quantum system. Although imaginary time evolution is non-unitary, the normalised dynamics of this evolution can be simulated on a quantum computer using the quantum imaginary time evolution (QITE) algorithm. In this paper, we broaden the scope of QITE by removing its restriction to anti-Hermitian Hamiltonians, which allows us to solve any partial differential equation (PDE) that is equivalent to the Schrödinger equation with an arbitrary, non-Hermitian Hamiltonian. An example of such a PDE is the famous Black-Scholes equation that models the price of financial derivatives. We will demonstrate how our generalised QITE methodology offers a feasible approach for real-world applications by using it to price various European option contracts modelled according to the Black-Scholes equation.
Implementing polynomial functions of Hermitian matrices on quantum hardware is a foundational task in quantum computing, critical for accurate Hamiltonian simulation, quantum linear system solving, high-fidelity state preparation, machine learning kernels, and other advanced quantum algorithms. Existing state-of-the-art techniques, including Qubitization, Quantum Singular Value Transformation (QSVT), and Quantum Signal Processing (QSP), rely heavily on block-encoding the Hermitian matrix. These methods are often constrained by the complexity of preparing the block-encoded state, the overhead associated with the required ancillary qubits, or the challenging problem of angle synthesis for the polynomial's phase factors, which limits the achievable circuit depth and overall efficiency. In this work, we propose a novel and resource-efficient approach to implement arbitrary polynomials of a Hermitian matrix by leveraging the Generalized Quantum Signal Processing (GQSP) framework. Our method circumvents the need for block-encoding and avoids the compounding post-selection overheads characteristic of LCU-based constructions, achieving a stable, degree-independent success probability. We derive closed-form expressions for symmetric polynomial expansions and demonstrate how linear combinations of GQSP circuits can realize the desired transformation. This approach reduces resource overhead and opens new pathways for quantum algorithm design for functions of Hermitian matrices, particularly in settings where the Hermitian operator arises naturally from symmetric combinations of unitaries.
Pricing financial derivatives, in particular European-style options at different time-maturities and strikes, is a relevant financial problem. 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 pay-off of the option contract and no additional boundary conditions. Here, we present a digital quantum algorithm to solve Black-Scholes equation on a quantum computer for a wide range of relevant financial parameters by mapping it to the Schrodinger equation. The non-Hermitian nature of the resulting Hamiltonian is solved by embedding the dynamics into an enlarged Hilbert space, which makes use of only one additional ancillary qubit. Moreover, we employ a second ancillary qubit to transform initial condition into periodic boundary conditions, which substantially improves the stability and performance of the protocol. This algorithm shows a feasible approach for pricing financial derivatives on a digital quantum computer based on Hamiltonian simulation, technique which differs from those based on Monte Carlo simulations to solve the stochastic counterpart of the Black Scholes equation. Our algorithm remarkably provides an exponential speedup since the terms in the Hamiltonian can be truncated by a polynomial number of interactions while keeping the error bounded. We report expected accuracy levels comparable to classical numerical algorithms by using 10 qubits and 94 entangling gates on a fault-tolerant quantum computer, and an expected success probability of the post-selection procedure due to the embedding protocol above 60\%.
Modern quantum algorithms are increasingly formulated as coherent procedures for implementing polynomial transformations of operators and singular values. This perspective provides a powerful and unifying language for quantum algorithm design, connecting a wide range of distinct problems through five closely related key tools: block-encoding, qubitization, QSP, QSVT and GQSP. Block-encoding embeds non-unitary matrices into larger unitaries; qubitization converts block-encodings into structured operators; QSP, QSVT and GQSP enable polynomial transformations with near-optimal query complexity. Together, these techniques form a general toolkit for transforming matrix functions into implementable quantum circuits. This paper develops these techniques from first principles as a unified framework for constructing quantum algorithms. We apply this framework to representative applications to highlight design principles and demonstrate how distinct algorithms can be constructed from a unified sequence of operator transformations.
A central contribution is a systematic decision workflow for selecting the appropriate approach according to the operator structure and the desired transformation polynomial. This perspective clarifies when direct GQSP or through qubitization, or Laurent expansion, or QSVT is most appropriate. We organize algorithmic design into an end-to-end pipeline: identifying the target matrix function, constructing an appropriate block-encoding, determining the relevant spectral domain, designing a polynomial or Laurent-polynomial approximation, synthesizing the phase factors, and translating the transformation into an executable quantum circuit. By applying this unified framework to example applications, we showcase a practical methodology for reasoning, designing, and implementing quantum algorithms based on polynomial transformations.
The accurate valuation of financial derivatives plays a pivotal role in the finance industry. Although closed formulas for pricing are available for certain models and option types, exemplified by the European Call and Put options in the Black-Scholes Model, the use of either more complex models or more sophisticated options precludes the existence of such formulas, thereby requiring alternative approaches. The Monte Carlo simulation, an alternative approach effective in nearly all scenarios, has already been challenged by quantum computing techniques that leverage Amplitude Estimation. Despite its theoretical promise, this approach currently faces limitations due to the constraints of hardware in the Noisy Intermediate-Scale Quantum (NISQ) era. In this study, we introduce and analyze a quantum algorithm for pricing European call options across a broad spectrum of asset models. This method transforms a classical approach, which utilizes the Fast Fourier Transform (FFT), into a quantum algorithm, leveraging the efficiency of the Quantum Fourier Transform (QFT). Furthermore, we compare this novel algorithm with existing quantum algorithms for option pricing.