28. Consider a shout option with strike K. One way to price the option is as follows. If at some point in time prior to maturity, you shout when the stock price is S > K, then you capture the profits S - K (to be paid at maturity) and the original shout call option held is replaced with a new vanilla call option with a strike of S for the remaining maturity.
(a) Explain how you would use a binomial tree to price this option.
(b) Will the tree be recombining? That is, can the option be priced by backwards recursion?
(c) Is the option path-dependent?
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