Modify sample application g in derivagem application builder

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Reference no: EM131241219

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. Compare results for the following cases:

(a) Option is European; normal model with σ = 0:01 and a = 0:05

(b) Option is European; lognormal model with σ = 0:15 and a = 0:05

(d) Option is American; lognormal model with σ = 0:15 and a = 0:05:

751_Table 3.jpg

Reference no: EM131241219

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