Abstract: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.
From: Jingbo Wang [view email]
[v1]
Sat, 30 May 2026 00:51:52 UTC (6,250 KB)
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