- This topic has 1 reply, 2 voices, and was last updated 3 months, 1 week ago by
.
- Posts
- February 16, 2020 at 8:41 pm
Dear john please explain why shareholders are the holders of the call option and debt holders are holders of put options ?
February 17, 2020 at 6:07 amHolding 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
The topic ‘Call and put option’ is closed to new replies.