hard · Quantitative Finance
In the Merton structural credit model, the debt of a firm is equivalent to which of the following option positions?
- A risk-free bond with no dependency on the firm's asset value.
- A long call option on the firm's assets struck at the debt level.
- A long put option on the firm's assets providing protection against bankruptcy.
- Owning the firm's assets and being short a put option on the assets struck at the debt level.
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