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# Merton model valuation

### P2.T6. Credit Risk (25%)

Hi, I have a practice question (non-BT) related to the use of Merton's debt valuation model. An investor has a ...
Hi, I have a practice question (non-BT) related to the use of Merton's debt valuation model. An investor has a large position of bonds issued by XYZ Limited. He has hedged ...
Hi, I have a practice question (non-BT) related to the use of Merton's debt valuation model. An investor has a large position of bonds issued by XYZ Limited. He has hedged these bonds with equity using Merton’s debt valuation model ...

# Probability of default under Merton

### P2.T6. Credit Risk (25%)

#1 - pascalb
The Black-Scholes option pricing formula has d1=ln(S/K)+.... Yet, the Stulz reading and in the notes, has "BSM risk ...
The Black-Scholes option pricing formula has d1=ln(S/K)+.... Yet, the Stulz reading and in the notes, has "BSM risk-neutral d2 is: d2=ln (S/K...) (p.8 of the notes). Should be not ...
The Black-Scholes option pricing formula has d1=ln(S/K)+.... Yet, the Stulz reading and in the notes, has "BSM risk-neutral d2 is: d2=ln (S/K...) (p.8 of the notes). Should be not d1 and I understand replacing the risk-free for the mean ...

# T4-11: Black Scholes Merton option pricing model

### P1.T4. Valuation & Risk Models

David gives a brief tour of a Black Scholes option pricing model. He highlights three of the questions that we get about ...
David gives a brief tour of a Black Scholes option pricing model. He highlights three of the questions that we get about this famous model. 1. How are dividends exactly treated? 2 ...
David gives a brief tour of a Black Scholes option pricing model. He highlights three of the questions that we get about this famous model. 1. How are dividends exactly treated? 2. Can we interperet N(d1) and N(d2)? 3. Is there any way to ...

# Inconsistency in Stulz's BSM Equity Formula

### P2.T6. Credit Risk (25%)

#1 - kchristo
dev asset returns) * T^.5) + (1/2)*(std dev)*T Also, the spreadsheet, cell E40 on the tab: "Stulz' Merton" has the ...
dev asset returns) * T^.5) + (1/2)*(std dev)*T Also, the spreadsheet, cell E40 on the tab: "Stulz' Merton" has the variance being ADDED to the risk free rate in d1 (r ...
dev asset returns) * T^.5) + (1/2)*(std dev)*T Also, the spreadsheet, cell E40 on the tab: "Stulz' Merton" has the variance being ADDED to the risk free rate in d1 (r + (variance of asset returns)/2) , but the study notes under ...

# Merton Value of Equity Formula

### P2.T6. Credit Risk (25%)

#1 - bpdulog
Hi, I have seen the Merton value of equity formula given as: However in the text, it is provided as follows: What ...
Hi, I have seen the Merton value of equity formula given as: However in the text, it is provided as follows: What is the significance of the Pt(T) variable? It is defined ...
Hi, I have seen the Merton value of equity formula given as: However in the text, it is provided as follows: What is the significance of the Pt(T) variable? It is defined as the price of a \$1 0 coupon bond that matures at time T ...

# Merton drift in DD

### P2.T6. Credit Risk (25%)

Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator ...
Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator is the expected value of the price, and the denominator is ...
Hi All, P2.T6.R43 I am trying to conceptually understand how the DD value is calculated statistically. The numerator is the expected value of the price, and the denominator is the standard deviation. My question relates to the numerator ...

# T4-12: How to interpret N(d1) and N(d2) in Black Scholes Merton

### P1.T4. Valuation & Risk Models

N(d1) is the option's delta and N(d2) is the probability that a call option will be exercised; that is, N(d2) is the ...
N(d1) is the option's delta and N(d2) is the probability that a call option will be exercised; that is, N(d2) is the probability that S(T) will be greater than K. David's XLS is ...
N(d1) is the option's delta and N(d2) is the probability that a call option will be exercised; that is, N(d2) is the probability that S(T) will be greater than K. David's XLS is here: https://trtl.bz/2E8qsmw ...

# P2.T6.710. Merton, survival time, and z-spread

### Today's Daily Questions

The risk management staff at an investment bank uses the Merton model to estimate the distance to default (DD) and ...
The risk management staff at an investment bank uses the Merton model to estimate the distance to default (DD) and expected default frequency (EDF) in evaluating default ...
The risk management staff at an investment bank uses the Merton model to estimate the distance to default (DD) and expected default frequency (EDF) in evaluating default conditions for both potential and existing client firms. One such ...

# Risk free debt, merton model

### P2.T6. Credit Risk (25%)

reading the Stulz chapter from GARP readings and what I understand is that in the PD calculation in Merton model ...
reading the Stulz chapter from GARP readings and what I understand is that in the PD calculation in Merton model, Stulz uses Risk free Debt ( F*exp(-r*t)) in the formulae so ...
reading the Stulz chapter from GARP readings and what I understand is that in the PD calculation in Merton model, Stulz uses Risk free Debt ( F*exp(-r*t)) in the formulae so instead of ln(asset value/face value of debt), he uses ln ...

# N(d1) and N(d2) in Merton Model

### P2.T5. Market Risk (25%)

What does the Merton model return for the value of the firm’s equity? This is the question 4 in study note of Reading ...
What does the Merton model return for the value of the firm’s equity? This is the question 4 in study note of Reading 43 of Bionic Turtle FRM Part 2 Market Risk, The answer just ...
What does the Merton model return for the value of the firm’s equity? This is the question 4 in study note of Reading 43 of Bionic Turtle FRM Part 2 Market Risk, The answer just give some d1 and d2 but I have difficulty understanding ...  