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Future value of the debt under Merton model

The author Malz states the future value of the firm's debt under the Merton model can be found from: $$ D_{t} = D - max(D - A_{t} , 0) $$ (where D is the par value of the debt, $A_{t}$ is the ...
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Why is the value of debt modeled as a short put option in Merton's model?

Can someone give me an intuitive understanding of why the Merton model models the value of the debt from the lender's point of view as a short put with a risk free bond? I'm not well versed in this ...
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Merton Jump Diffusion Model: Influence of lambda

I use Monte Carlo to simulate sample paths of Merton's jump diffusin model. By plotting a histogram of the log returns and using kerneldensity to approximate the density function I try to look at the ...
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102 views

Question about the stochastic differential equation in the Merton model

in the following stochastic differential equation merton model we have $$\frac{ds}{s}=(\alpha-\lambda k)dt+\sigma dW+dq$$ where $\alpha$ is the instantaneous expected return on the stock; ...
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170 views

How to interpret negative asset volatility numerical results in Merton model?

I am currently working on my thesis where I discuss the Merton default probability model. I have a huge sample of US firms for the period 1990-2010. I use both numerical and complex iterative approach ...
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156 views

How to calculate modeled asset volatility by industry factor?

Currently I am working with huge data frame which consists of a lot firms. For each firm in my sample I calculated asset volatility ( I am using Merton default probability model, so I have used 2 ...
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2k views

How to use Merton model to calculate default probability with monthly stock prices?

I want to calculate the estimated default probability with only given data the monthly returns for the last 20 years, the risk-free rate ($R_f$), equity value (EV) and the face value of debt ($D$). My ...