Quantum Pricing with a Smile: Implementation of Local Volatility Model on Quantum Computer

Understand

Applications of the quantum algorithm for Monte Carlo simulation to pricing of financial derivatives have been discussed in previous papers.

• However, up to now, the pricing model discussed in such papers is Black-Scholes model, which is important but simple.
• Therefore, it is motivating to consider how to implement more complex models used in practice in financial institutions.
• In this paper, we then consider the local volatility (LV) model, in which the volatility of the underlying asset price depends on the price and time.