Call and put option

Holding shares in a company is similar to holding a call option because if the debt in the company exceeds the asset value then the shareholders can walk away (due to limited liability) whereas if the assets exceed the debts then the shareholders will continue in the business in order to get the surplus. This is all explained well (to the level required for the exam) by the examiners article on the ACCA website: https://www.accaglobal.com/lk/en/student/exam-support-resources/professional-exams-study-resources/p4/technical-articles/application-of-option-pricing-to-valuation-of-firms.html