Abstract

In this paper, based upon the Lie- Trotter operator splitting method proposed by Lo (2014), we present a simple closed-form ap- proximation for pricing the (three-asset) dual spread options. Illustrative numerical exam- ples show that the proposed approximation is not only extremely fast and robust, but also it is very accurate for typical volatilities and maturities up to two years. Moreover, for the case of a vanishing strike the proposed approx- imation becomes exact.

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