Journal of Credit Risk
ISSN:
1744-6619 (print)
1755-9723 (online)
Editor-in-chief: Nikunj Kapadia and Linda Allen
Merton's model, credit risk and volatility skews
John C. Hull, Izzy Nelken, Alan D. White
Abstract
ABSTRACT
In 1974 Robert Merton proposed a model for assessing the credit risk of a company by characterizing the company’s equity as a call option on its assets. In this paper we propose a method for estimating the model’s parameters from the implied volatilities of options on the company’s equity.
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