Derivative Valuation

Derivatives pricing is one of the most crucial aspects of quantitative finance. The gross market value of derivatives contracts stood at $12.4 trillion (OTC derivatives statistics at end-December 2021 – bis.org), making it one of the most lucrative and challenging problems to simulate and optimize. Although many aspects of derivative pricing can be computed using classical computing, gate-based quantum computers can be an efficient resource when multiple computations are required, due to their ability to parallelize and handle multiple assets. This chapter looks into the theoretical aspects of derivatives pricing and examines its real-time applications through classical computing and gate-based quantum computers.

This chapter addresses the need to explain option pricing from a layman’s point of view. Various aspects of option pricing will be described in an easy-to-understand manner. Different case studies and anecdotes will be incorporated to...