medium · Quantitative Finance
In the Merton structural model of credit risk, a firm has assets worth A_0 = 200 million and asset volatility σ = 30%. It owes D = 150 million in debt maturing in T = 2 years. Given a risk-free rate r = 3%, identify the d_2 value for the default probability P(def) = Phi(-d_2). Note: ln(200/150) ≈ 0.2877.
- 0.1500
- 0.4243
- 1.0316
- 0.6073
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