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 28.2. 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

(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.

AppendixLO1