Merton Model

Dictionary Says

Definition of 'Merton Model'

A model, named after the financial scholar Robert C. Merton, that was developed in the 1970s and is used today to evaluate the credit risk of a corporation's debt. Brokerage firm analysts and some investors employ the model in order to determine a company's ability to service its debt, meet its financial obligations and to gauge the overall possibility of credit default.

Also referred to as "Asset Value Model." 
Investopedia Says

Investopedia explains 'Merton Model'

Fischer Black and Myron Scholes utilized Merton's work to build out what has since become known as the Black-Scholes pricing model.

Securities analysts and loan officers attempting to determine a company's credit fault risk will utilize the Merton Model as a means of analysis. The model allows the analysts to better value the company, as well as determine its ability to remain solvent through the analysis of reported debt amounts and maturity dates.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Credit Rating

    An assessment of ...
  2. Credit Risk

    The risk of loss ...
  3. Default Risk

    The event in ...
  4. Default Model

    A type of model ...
  5. Black Scholes Model

    A model of price ...
  6. Binomial Tree

    A graphical ...
  7. Black's Model

    A variation of ...
  8. Agency Bond

    A bond issued by ...
  9. Convertible Arbitrage

    An investing ...
  10. Liquidation

    1. When a ...

Articles Of Interest

  1. Risk And Diversification

    Safeguarding your portfolio involves a few simple steps.
  2. Evaluating Bond Funds: Keeping It Simple

    Discover some of the key factors for determining a fund's risk-return profile.
  3. Digging Deeper: The Mutual Fund Prospectus

    The legal jargon of this document can be daunting. Find out how to get to the important stuff.
  4. Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  5. Junk Bonds: Everything You Need To Know

    Don't be fooled by the name - junk bonds may be for you if you know how to analyze them.
  6. This Is Your Brain On Stocks

    Find out how the human mind can hurt investors' portfolios.
  7. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  8. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  9. 5 Popular Portfolio Types

    Learning how to build these portfolios will increase your investing confidence and give you financial control.
  10. How To Invest When You're Deep In Debt

    Debt is one of the biggest obstacles that prevents people from investing - but it shouldn't be.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center