A General Solution of Black–Scholes Equations on Some Rainbow Options

This study proposes a general solution of the Black–Scholes equation to determine some Rainbow options’ prices, both analytically and semi-analytically. We formulate general analytical solutions in non-dimensional terms by appropriately treating the payoff conditions. In particular, we present analytical solutions for three types of rainbow options: Better of options, Exchange options and Spread options. Furthermore, as our second contribution, we propose a semi-analytic solution for these three types of Rainbow options, leveraging the Homotopy Perturbation Method (HPM). The simulation results demonstrate the remarkable proximity of the semi-analytic solution to the analytical solution, ensuring accurate option pricing approximations.