This paper shows how a Merton-model approach can be used to develop measures of the probability of failure of individual quoted UK companies. Probability estimates are then constructed for a group of failed companies and their properties as leading indicators of failure assessed. Probability estimates of failure for a control group of surviving companies are also constructed. These are used in ...

European options can be priced using the analytical solution of the Black-Scholes-Merton differential equation with the appropriate boundary conditions. A different approach and the one commonly used in situations where no analytical solution is available is the Monte Carlo Simulation. We present the results of Monte Carlo simulations for pricing European options and we compare with the analyti...

Asset returns have been modeled in continuous time as diffusions by Black and Scholes (1973) and Merton (1973), as pure jump processes by Cox and Ross (1976), and as jump-diffusions by Merton (1976). The jump processes studied by Cox and Ross display finite activity, while some recent research has considered some pure jump processes with infinite activity. Two examples of these infinite-activit...

This paper examines the capability of firm fundamentals in explaining the cross-sectional variation of credit default swap spreads. We start with the Merton (1974) model, which combines two major credit risk determinants into a distance-to-default measure. We convert the distance-to-default measure into a raw CDS valuation based on a constant hazard rate assumption and then map the raw CDS valu...

Abstract The theory of anomie has two main theorists: Durkheim, its founder, and Merton, who developed it. However, Durkheim’s is very different from Merton’s. This difference been largely ignored due to the dominance Merton’s in sociological research. purpose this article explain these theories explore their differences. shows that differences between are mainly explaining anomie, precedence l...

We are particularly thankful to Professors Ieuan Morgan and Stuart Turnbull for their guidance. We would also like to thank Abstract We compare Longstaa and Schwartz (1995) (the LS model) and Merton (1974) using Eurodollar data. We show that both models are restrictive for money market securities due to modelling arrival time of default as a predictable process, which implies that credit term s...