An option is said to be path-dependent if
A)It has a payoff that depends in some way on the path of prices taken by the underlying.
B)It can only be priced on a non-recombining tree.
C)Different paths of the asset price necessarily lead to different payoffs.
D)All of the above.

Question

Quizplus · Accepted Answer

There are path-dependent options that can be priced on recombining trees,for example,down-and-out options.So a non-recombining tree is not essential and (b)is not valid.Different paths can lead to the same payoffs sometimes for path-dependent options (e.g. ,Asian options in which two different paths have the same average price).

An Option Is Said to Be Path-Dependent If