Do i really owe him $500?

One of my friends lent me his old camera. It was a grad gift from his parents and was special to him. His parents paid $500 for it. The camera got stolen from my car one night. I felt extremely bad about it, and found the exact same camera, brand new, online for half the price his parents bought it for. I offered to buy him that one online OR give him $250. He didn't like either of those options, and insisted that i give him $500. It has really torn our friendship apart. Please let me know your opinion.