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secret2
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Joined: July 28th, 2010, 10:29 pm

Merton Credit Model: Pricing?

September 26th, 2011, 4:42 am

I am curious as to pricing credit derivatives under the Merton framework. I know it is not good for this purpose, but just for the sake of discussion, since Merton only allows for default at one single point in time, does that mean that we can't really fit a default probability 'term structure' after calibrating the model? But can only find a single PD(T) that coincide with the artificial Merton time horizon T?
 
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bearish
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Joined: February 3rd, 2011, 2:19 pm

Merton Credit Model: Pricing?

September 26th, 2011, 10:01 am

The Merton model is too stylized to be directly useful in practice, but you can check out various papers describing the KMV model (e.g. Kealhofer, FAJ, 2003), which was (or is, I suppose) a successful commercial implementation of Merton's general ideas.
 
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MTorrejon
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Re: Merton Credit Model: Pricing?

January 7th, 2019, 11:50 pm

do you have any of the Kealhofer's papers?
 
HarryHancock
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Re: Merton Credit Model: Pricing?

January 11th, 2019, 9:48 am

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richardhicks
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Joined: January 13th, 2019, 6:49 pm

Re: Merton Credit Model: Pricing?

January 13th, 2019, 6:52 pm

In fact, there are two main approaches to consider when we speak about pricing credit derivatives. These strategies may vary since you have several goals. 
 
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bearish
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Joined: February 3rd, 2011, 2:19 pm

Re: Merton Credit Model: Pricing?

January 13th, 2019, 9:00 pm

That almost makes sense. Please tell us more!
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