Consider the pricing of the callable American put option by binomial calculations, let us write Show that

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Consider the pricing of the callable American put option by binomial calculations, let us write 

Pcont = j+1 + (1 - p) p+1 j R pPn+1

Show that binomial scheme (6.1.15) can be modified to become 

P = max(min(Pcont, K), X - S

Give the financial interpretation of the modified scheme.

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