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 to estimate asset volatility and asset value.
I have a problem with the numerical approach because when I estimate asset value and asset volatility (in statistical software R with this code) for some firms in the sample I get a negative annual asset volatility. This does not make sense as something which is result of square root can't be negative, but it could be due estimation in numerical approach.
Has anyone come across something like this or what are your thoughts regarding this phenomenon.