MertonModel

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Contents
  1. Interface
  2. Overview
  3. Members

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Finance

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Interface

#include <codecogs/finance/mertonmodel.h>

using namespace Finance;

Overview

This module implements the Merton (1974) structural credit risk model. Under this model a firm's equity is treated as a European call option on the value of the firm's assets, with the book value of its liabilities as the strike price and the time to liabilities maturity as the option's time to expiry. The Black-Scholes-Merton option pricing formula is used to compute the market value of equity, from which the value of the firm's liabilities, the yield-to-maturity of that debt and the (real-world) probability of default can also be derived.

Parameters

V
Present Firm Value
D
Book Value of Liabilities
T
Years to Liabilities Maturity
r
Annual Interest Rate
u
Future Firm Value Growth Rate
v
Future Firm Value Volatility
n
Number of Stocks Outstanding

Returns

Equity Value, Stock Value, Liabilities Value, Credit Spread, Default Probability

References

  • This Merton calculation code is based on the Black-Scholes code by Espen Haug. See http://www.espenhaug.com/black_scholes.html
GPL Licence — free for non commercial use. See Licence details.

FUNCTION

CND

Returns the cumulative distribution function of the standard normal distribution, using a fast polynomial approximation.

Parameters

X
the point at which to evaluate the cumulative normal distribution

Returns

the cumulative standard normal distribution value at X, i.e. N(X)
Author

Cho, Seung Mo (October 2011)

References

  • This CDF calculation code is by Espen Haug. See http://www.espenhaug.com/black_scholes.html

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