Verify that the DerivaGem software gives Figure 32.9 for the example considered. Use the software to calculate

Question:

Verify that the DerivaGem software gives Figure 32.9 for the example considered. Use the software to calculate the price of the American bond option for the lognormal and normal models when the is 95, 100, and 105. In the case of the normal model, assume that a = 5% and σ = 1%. Discuss the results in the context of the heavy-tails arguments of Chapter 20.
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.