#### Sunil Natarajan

##### Credit Analyst

I have some confusion regarding Merton Model in Credit Risk.

According to Stulz (Ch-18)

d1=LN(V/F*exp(-rt))/(Std Dev * t^0.5)+0.5*Std dev*t^0.5

According to Servigny (Ch-3)

d1=d2+Std Dev*t^0.5

In Market Risk

(Black Scholes Merton)

d1=(LN(V/F)+(r+(0.5*Std Dev*t^0.5))/(Std Dev*t^0.5)

Why does each of them give different formulae for the same variable d1.Does the value of d1 in each of the formulae result in same answer.

In Merton Model what is the Prob of Default.Is it N(-d2) or N(d2). In KMV what is the Prob of Default and LGD. Is Prob of Default the same as Distance to Default.Could you just explain what happens in KMV model exactly.

In KMV what is the LGD measure.

Regards,

Sunil Natrajan