The price of bond and European option on bond without credit risk. Classical look and its quantum extension

TL;DR

This paper compares classical diffusion models for bond pricing, highlighting differences in European call option prices on zero-coupon bonds, and extends the analysis into a quantum framework.

Contribution

It introduces a quantum extension to classical interest rate models, revealing new insights into bond and option pricing without credit risk.

Findings

Significant differences in European call option prices between models

Quantum extension offers novel perspectives on bond valuation

Classical models' limitations are addressed with quantum methods

Abstract

In this paper we compare two classical one-factor diffusion models which are used to model the term structure of interest rates. One of them is based on the Wiener-Bachelier process while the second one is based on the Ornstein-Uhlenbeck process. We show essential differences between the prices of European call options on a zero-coupon bond in these models.