Answer:
D. He
Explanation:
The participle phrase is here modifying the subject "he". It assists in the amendment of the gerund phrase i.e. 'his laughing action" where the participle phrase("he shook his head and said") acts as an adjective to revamp or modify the previous idea. As we know that adjectives always function as a transformer of a noun or pronoun and thus adds to meaning and description to the sentence which best illustrates the use of participle phrase here. Thus, we could conclude that here the participle phrase modifies the pronoun "he".
