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The Merton's Default Risk Model for Public Company

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  • Battulga Gankhuu

Abstract

In this paper, we developed the Merton's structural model for public companies under an assumption that liabilities of the companies are observed. Using Campbell and Shiller's approximation method, we obtain formulas of risk-neutral equity and liability values and default probabilities for the public companies. Also, the paper provides ML estimators of suggested model's parameters.

Suggested Citation

  • Battulga Gankhuu, 2024. "The Merton's Default Risk Model for Public Company," Papers 2406.18121, arXiv.org, revised Sep 2024.
    • Handle: RePEc:arx:papers:2406.18121
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    References listed on IDEAS

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    1. Battulga Gankhuu & Jacob Kleinow & Altangerel Lkhamsuren & Andreas Horsch, 2022. "Dividends And Compound Poisson Processes: A New Stochastic Stock Price Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 25(03), pages 1-36, May.
    2. repec:bla:jfinan:v:43:y:1988:i:3:p:661-76 is not listed on IDEAS
    3. Campbell, John & Shiller, Robert, 1988. "Stock Prices, Earnings, and Expected Dividends," Scholarly Articles 3224293, Harvard University Department of Economics.
    4. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    5. Goldfeld, Stephen M. & Quandt, Richard E., 1973. "A Markov model for switching regressions," Journal of Econometrics, Elsevier, vol. 1(1), pages 3-15, March.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    7. Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
    8. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-384, March.
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