Pricing Dual Spread Options by the Lie-Trotter Operator Splitting Method

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