Default Probability Using Merton Model
Estimates the probability of default of a firm using the Merton option pricing formula
The Merton model for assessing the structural credit risk of a company models the equity of a company as a call option on its assets and the liability is a strike price. For more information on the Merton model, seeDefault Probability by Using the Merton Model for Structural Credit Risk.
Functions
mertonmodel |
Estimates probability of default using Merton model |
mertonByTimeSeries |
Estimate default probability using time-series version of Merton model |
Examples and How To
- Comparison of the Merton Model Single-Point Approach to the Time-Series Approach
This example shows how to compare the Merton model approach, where equity volatility is provided, to the time series approach.
Concepts
- Default Probability by Using the Merton Model for Structural Credit Risk
The Merton model is structural because it gives a relationship between the default risk and the capital structure of the firm.