Assignment Problem: Merton Model
Consider a company with equity value equal to $80, and face value of debt of $50. The annual log-return on risk-free debt is 3%. If the debt of the company expires in 0.5 years, how does the probability of default of the company change as a function of the volatility of the equity?
Q1. Create a plot where the distance to default is on the y-axis and the volatility of the equity (from 0.1 to 1.5, in increments of 0.1) is on the x-axis.
Q2. Create a plot where the probability of default is on the y-axis and the volatility of the equity (from 0.1 to 1.5, in increments of 0.1) is on the x-axis.
Q3. Comment on the results.
Avail professional tutors from Merton Model Assignment Help, Homework Help service to rescue your academic woes in no time.
Tags: Merton Model Assignment Help, Merton Model Homework Help, Merton Model Coursework, Merton Model Solved Assignments