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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 company's equity as a call option on its assets and the liability is a strike price. For more information on the Merton model, see Default Probability by Using the Merton Model for Structural Credit Risk.

Functions

mertonmodel Estimates probability of default using Merton model
mertonByTimeSeriesEstimate 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.

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