<t>Hi all,I would recommend looking at the work the guys do @ Barra.In short they estimate a beta (in light of the discussion I think an equity beta) based on a set of market and fundamental indicators.Pioneered by Barr Rosenberg, try looking for some of his original papers.I think you will find the...

<t>Hmmm...Looking through the Hull book, I would be tempted to go for option risk neutral.The following quote (p. 491 6th edition): "CreditGrades use Merton's model to estimate credit spreads, which are closely linked to risk neutral probabilities."However, this does not yet give me a definitive ans...

<t>Hmmm...Looking through the Hull book, I would be tempted to go for option risk neutral.The following quote (p. 491 6th edition): "CreditGrades use Merton's model to estimate credit spreads, which are closely linked to risk neutral probabilities."However, this does not yet give me a definitive ans...

Dear all,Could someone help me out by telling me if the default probabilities Credit Grades calculates are actual or risk neutral default probabilities.Please provide some additional references if possible.Kind regards,Michal

<t>Browsing through the original Merton (1973) paper on the pricing of corporate debt, I stumbled across a section on the valuation of perpetual, risky, coupon paying, non-callable bonds.Merton suggest a formula containing "the Gamma function" and "the confluent hypergeometric function". This does n...