Pricing Lookback Options on a Quantum Computer

Pricing Lookback Options on a Quantum Computer

Pricing Lookback Options on a Quantum Computer

Section 1 – What happened?

Researchers at a leading institution have made a breakthrough in pricing complex financial derivatives on a quantum computer. They have developed a quantum algorithm to price discretely monitored lookback options in the Black-Scholes framework using imaginary time evolution. The algorithm, which uses a non-Hermitian Hamiltonian, can efficiently approximate the pricing problem with a parameterized, hardware-efficient quantum circuit. To address the challenge posed by jump conditions caused by the discrete updating of the running maximum, the researchers proposed two quantum-compatible formulations: a sequential approach and a simultaneous multi-function evolution.

Section 2 – Background & Context

The Black-Scholes framework is a widely used model for pricing financial derivatives, but it struggles to accurately price complex options with non-smooth dynamics. Lookback options, in particular, are path-dependent and require the calculation of the running maximum of the underlying asset's price. This can lead to jump conditions that are difficult to handle in traditional quantum treatments. The development of a quantum algorithm to price these options is a significant step forward in the field of quantum finance.

Section 3 – Impact on Swiss SMEs & Finance

The ability to price complex derivatives on a quantum computer has significant implications for the financial industry. It could enable the development of more sophisticated financial products and improve risk management for banks and other financial institutions. For Swiss SMEs, this could lead to more efficient access to capital and improved risk management. However, the adoption of quantum computing in finance will require significant investment in infrastructure and training.

Section 4 – What to Watch

The researchers' results show that discretely monitored, path-dependent options with jump conditions can be handled within a variational quantum framework. This paves the way toward the quantum pricing of more complex derivatives with non-smooth dynamics. As quantum computing continues to advance, we can expect to see more applications in finance. Readers should monitor the development of quantum algorithms for pricing complex derivatives and the adoption of quantum computing in the financial industry.

Source

Original Article: Pricing Lookback Options on a Quantum Computer

Published: April 1, 2026

Author: Florence Paquette

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Consult a licensed financial advisor before making investment decisions.