medium · FRM Part 2 Credit Risk
According to the Merton structural model of credit risk, equity holders can be viewed as holding which of the following?
- A short position in a call option written on the total value of the firm's underlying assets held.
- A long position in a call option on the firm's assets with a strike price equal to the face value of debt.
- A long position in a put option on the firm's assets, struck at the face value of the firm's debt.
- A long position in the firm's assets combined with a long position in a risk-free bond maturing with the debt.
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