medium · Private Credit & Debt documentation-covenants-terms
In credit theory, what is the primary distinction between the Black-Cox model and the Merton model?
- Merton assumes that asset values are normally distributed
- Black-Cox allows for default before maturity via a barrier trigger
- Black-Cox is used only for pricing unsecured subordinated debt tranches
- Merton explicitly accounts for stochastic movements in interest rates over time
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