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EPJ Quantum Technology

Alternative pipeline for option pricing using quantum computers

Alberto Manzano, Gonzalo A. Casanova Ferro, Álvaro Leitao, Carlos Vázquez, Andrés Gómez

Published Feb 25, 2025• 0 citations
Publisher

Abstract

Abstract In this work we present an alternative methodology to the standard Quantum Accelerated Monte Carlo (QAMC) applied to derivatives pricing. Our pipeline benefits from the combination of a new encoding protocol, referred to as the direct encoding, and an amplitude estimation algorithm, the modified Real Quantum Amplitude Estimation (mRQAE) algorithm. On the one hand, the direct encoding prepares a quantum state which contains the information about the sign of the expected payoff. On the other hand, the mRQAE is able to read all the information contained in the quantum state. Although the procedure we describe is different from the standard one, the main building blocks are almost the same. Thus, all the extensive research that has been performed is still applicable. Moreover, we experimentally compare the performance of the proposed methodology against the standard QAMC employing a quantum emulator and show that we retain the speedups.

DOI
10.1140/epjqt/s40507-025-00328-3

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Abstract In this work we present an alternative methodology to the standard Quantum Accelerated Monte Carlo (QAMC) applied to derivatives pricing. Our pipeline benefits from the combination of a new encoding protocol, referred to as the direct encoding, and an amplitude estimation algorithm, the modified Real Quantum Amplitude Estimation (mRQAE) algorithm. On the one hand, the direct encoding prepares a quantum state which contains the information about the sign of the expected payoff. On the other hand, the mRQAE is able to read all the information contained in the quantum state. Although the procedure we describe is different from the standard one, the main building blocks are almost the same. Thus, all the extensive research that has been performed is still applicable. Moreover, we experimentally compare the performance of the proposed methodology against the standard QAMC employing a quantum emulator and show that we retain the speedups.
In this work we present an alternative methodology to the standard Quantum Accelerated Monte Carlo (QAMC) applied to derivatives pricing. Our pipeline benefits from the combination of a new encoding protocol, referred to as the direct encoding, and a amplitude estimation algorithm, the modified Real Quantum Amplitude Estimation (mRQAE) algorithm. On the one hand, the direct encoding prepares a quantum state which contains the information about the sign of the expected payoff. On the other hand, the mRQAE is able to read all the information contained in the quantum state. Although the procedure we describe is different from the standard one, the main building blocks are almost the same. Thus, all the extensive research that has been performed is still applicable. Moreover, we experimentally compare the performance of the proposed methodology against the standard QAMC employing a quantum emulator and show that we retain the speedups.
This work introduces an end-to-end framework for multi-asset option pricing that combines market-consistent risk-neutral density recovery with quantum-accelerated numerical integration. We first calibrate arbitrage-free marginal distributions from European option quotes using the Normal Inverse Gaussian (NIG) model, leveraging its analytical tractability and ability to capture skewness and fat tails. Marginals are coupled via a Gaussian copula to construct joint distributions. To address the computational bottleneck of the high-dimensional integration required to solve the option pricing formula, we employ Quantum Accelerated Monte Carlo (QAMC) techniques based on Quantum Amplitude Estimation (QAE), achieving quadratic convergence improvements over classical Monte Carlo (CMC) methods. Theoretical results establish accuracy bounds and query complexity for both marginal density estimation (via cosine-series expansions) and multidimensional pricing. Empirical tests on liquid equity entities (Credit Agricole, AXA, Michelin) confirm high calibration accuracy and demonstrate that QAMC requires 10-100 times fewer queries than classical methods for comparable precision. This study provides a practical route to integrate arbitrage-aware modelling with quantum computing, highlighting implications for scalability and future extensions to complex derivatives.
We present a methodology to price options and portfolios of options on a gate-based quantum computer using amplitude estimation, an algorithm which provides a quadratic speedup compared to classical Monte Carlo methods. The options that we cover include vanilla options, multi-asset options and path-dependent options such as barrier options. We put an emphasis on the implementation of the quantum circuits required to build the input states and operators needed by amplitude estimation to price the different option types. Additionally, we show simulation results to highlight how the circuits that we implement price the different option contracts. Finally, we examine the performance of option pricing circuits on quantum hardware using the IBM Q Tokyo quantum device. We employ a simple, yet effective, error mitigation scheme that allows us to significantly reduce the errors arising from noisy two-qubit gates.
Option pricing is a fundamental problem in quantitative finance, where the accuracy and efficiency of valuation methods directly affect investment and risk management decisions. While the Black-Scholes model provides a closed-form solution for European options, numerical approaches such as Monte Carlo simulation are widely used when analytical methods are intractable. However, Monte Carlo suffers from slow convergence with complexity O(1/ε2).Quantum Amplitude Estimation (QAE), an algorithm in quantum computing, promises a quadratic speedup with complexity O(1/ε). This paper implements QAE, specifically Iterative Amplitude Estimation (IAE), for European call option pricing and compares its performance against Monte Carlo simulation and the Black-Scholes model. Experiments are conducted on both Qiskit simulators and IBM Quantum hardware (ibm_brisbane).Results show that QAE achieves estimates close to Monte Carlo and analytical benchmarks, with mean payoff deviations of less than 0.01. While QAE produces wider confidence intervals due to noise and discretization, the findings demonstrate its potential scalability advantage for future quantum finance applications.
ABSTRACT Quantum computing has attracted increasing attention as a potential tool for addressing computational challenges in quantitative finance. In particular, quantum amplitude estimation provides a theoretical quadratic speedup for expectation estimation compared with classical Monte Carlo simulation. However, most existing studies primarily emphasize algorithmic acceleration while retaining classical stochastic models for asset price dynamics. In this paper, we propose a unified quantum framework for European option pricing by formulating asset price evolution as a quantum continuous–time stochastic process (QCTSP) and integrating it with quantum amplitude estimation. By encoding both the stochastic dynamics of asset prices and the option payoff structure into a coherent quantum computational representation, the proposed approach enables option valuation to be performed entirely within a quantum probabilistic framework. Numerical simulations under the Black–Scholes setting are conducted to verify the feasibility and consistency of the method. Although the experiments are limited to a benchmark model, the proposed framework provides a systematic foundation for extending quantum option pricing to higher–dimensional and more complex financial models.
As one of the major methods for the simulation of option pricing, Monte Carlo method assumes random fluctuations in the distribution of asset prices. Under certain uncertainties process, different evolution paths could be simulated so as to finally yield the expectation value of the asset price, which requires a lot of simulations to ensure the accuracy based on huge and expensive calculations. In order to solve the above computational problem, quantum Monte Carlo (QMC) has been established and applied in the relevant systems such as European call options. In this work, both MC and QM methods are adopted to simulate European call options. Based on the preparation of quantum states in QMC algorithm and the construction of quantum circuits by simulating a quantum hardware environment on a traditional computer, the amplitude estimation (AE) algorithm is found to play a secondary role in accelerating the pricing of European options. More importantly, the payoff function and the time required for the simulation in QMC method show some improvements than those in MC method.