5.1 Merton’s Model I
Course week(s)
Week 5
Course subject(s)
Default Probabilities II
In this lesson, we introduce Merton’s model, a fundamental model for credit risk modeling.
As we will see, Merton’s model is one of the reference models in the field of credit risk management.
Merton’s model is a structural model of default, in which default happens when the market value of the assets of a company falls below a pre-determined threshold defined by liabilities.
The idea behind the model – you will see – is rather simple. The mathematical part, unfortunately, is not trivial.
We will try to focus our attention on the first part!
Merton's Model P1
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Introduction to Credit Risk Management by TU Delft OpenCourseWare is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Based on a work at https://ocw.tudelft.nl/courses/introduction-credit-risk-management/.