Application of the Option Market Paradigm to the Solution of Insurance Problems --discussion

where r is the risk free rate of interest, T is the time when the option expires, t is the current time, S(T) is a lognormal random variable related to the stock price S ( T ) at time T, k is the exercise price, and x + := max(x, 0). In insurance terms, ( L k) + represents the indemnity payment on a policy with a loss of L and a deductible k. The Black-Scholes price can also be regarded as the discounted insurance charge, see Gillam and Snader [18] or Lee [25]. It is easy to compute the insurance charge