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1. 1. Probability of Default and Credit Spreads in Banks: Examining a Modified Merton Model for Assessing Bank Risk

   University essay from Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

   Author : Linus Sigurdson; Fritiof Carling; [2020]
   Keywords : Banks; RNPD; Merton model; Credit spreads; Risk;

   Abstract : We examine the modified Merton model, as proposed by Nagel and Purnanandam (2019), and its ability to explain bank credit risk by comparing it to the standard Merton model. Previous structural models of default risk build on the assumption that assets follow a log-normal distribution, which is not applicable to banks. READ MORE