Utilizing Grover’s Algorithm Quantum Optimization for Options Pricing Following a Binomial Model
By Ryeen
This research project aims to investigate the application of Grover’s algorithm, a quantum search algorithm, to optimize options pricing in discrete-time financial models, specifically by utilizing a binomial time distribution. Binomial models approximate the behavior of an asset’s price by modeling it as a series of up or down movements over discrete time steps. These models are typically used for pricing American-style options, where holders can exercise the option at any time before expiration. This project focuses on encoding the binomial model into a quantum search Boolean Satisfiability problem. Each node in the binomial price tree will represent a possible asset price and decision point. Grover’s will be used to search through every node and identify the optimal exercise strategy using the predicted payoff at each node. Ultimately, the goal of this project will be to create as accurate as possible of a model for exercising options in American markets, and will compare results to those of European Market estimations.