An insurance policy is considered analogous to an option

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Reference no: EM131055530

1. An insurance policy is considered analogous to an option. From a policyholder's perspective, what type of option is an insurance policy? Why?

2. One thing put-call parity tells us is that given any three of a stock, a call, a put, and a T-bill, the fourth can be synthesized or replicated using the other three. For example, how can one replicate a share of stock using a call, a put, and a T-bill?

3. It is said that the equity holders of a levered firm can be thought of as holding a call option on the firm's assets. Explain what is meant by this statement.

Reference no: EM131055530

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