Extending the Merton Model: A New Approach to Incorporating Forward-Looking Market Information into Credit Risk Modeling
This thesis contributes to the credit risk literature by analyzing the Merton model’s ability to replicate credit default swap (CDS) spreads. Since defaults are rare events, resulting in low statistical power, the method is evaluated by comparing model implied CDS spreads to market ones. The data sample used includes quarterly observations from 2015 to 2024 for 44 firms included in the NASDAQ Comp
