Modify Sample Application G in the DerivaGem Application Builder software to test the
Chapter 31, Problem 31.27(choose chapter or problem)
Modify Sample Application G in the DerivaGem Application Builder software to test the convergence of the price of the trinomial tree when it is used to price a 2-year call option on a 5-year bond with a face value of 100. Suppose that the strike price (quoted) is 100, the coupon rate is 7% with coupons being paid twice a year. Assume that the zero curve is as in Table 31.2. Compare results for the following cases: (a) Option is European; normal model with 0:01 and a 0:05 (b) Option is European; lognormal model with 0:15 and a 0:05 7 (c) Option is American; normal model with 0:01 and a 0:05 (d) Option is American; lognormal model with 0:15 and a 0:05:
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