In this work, we model the empirically observed recovery risk premium by adding an additional correlated risk driver to Merton’s model for pricing corporate bonds. This risk driver represents the ...

R. Merton published a seminal paper [1] that laid the foundation for the development of structural credit risk models. Skip to content Home page Seeking Alpha - Power to Investors ...

Named for economist Robert C. Merton, who proposed it in 1974, the Merton model assesses the structural credit risk of a company by modeling its equity as a call option on its assets. Key Takeaways ...

This paper presents a robust test of Merton’s structural model for credit risk that does not depend on either estimated parameters for the firm’s value or estimated default probabilities. We derive a ...

We follow Jarrow, van Deventer, and Wang's paper "A Robust Test of Merton's Structural Model of Credit Risk" in this note. We have enumerated a short list of important implications of the model.

As is well known, most models of credit risk have failed to measure the credit risks in the context of the global financial crisis. In this context, financial industry representatives, regulators and ...

Gurdip Bakshi, Dilip Madan, Frank Xiaoling Zhang, Investigating the Role of Systematic and Firm‐Specific Factors in Default Risk: Lessons from Empirically Evaluating Credit Risk Models, The Journal of ...

Claremont Graduate University also commended him for his creation of the Merton Model, a structural credit risk model that treats equity as an option on the firm's assets; his development of SmartNest ...

The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt ...