merton-model

Hi, I have a practice question (non-BT) related to the use of Merton's debt valuation model. An investor has a large position of bonds issued by XYZ Limited. He has hedged these bonds with equity using Merton’s debt valuation model. Suppose the value takes an unprecedented tumble, but the...

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Learning objectives: Apply the Merton model to calculate default probability and the distance to default and describe the limitations of using the Merton model. Describe linear discriminant analysis (LDA), define the Z-score and its usage, and apply LDA to classify a sample of firms by credit...