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Credit risk Let the balance sheet total amount to CHF 100m and the risk-neutral default probability...

Credit risk

Let the balance sheet total amount to CHF 100m and the risk-neutral default probability be 10%. What size has equity in Merton's rm value model if r = 4%, σ= 20% and T = 1?

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Answer #1

Formulas Used :-

ln(S0/K) =IFERROR(LN(C5/C6),"na")
(r+σ2/2)t =(C8+(C9^2)/2)*C7
σ√t =C9*SQRT(C7)
d1 =IFERROR((C13+C14)/C15,"na")
d2 =IFERROR(C16-C15,"na")
N(d1) =IFERROR(NORM.S.DIST(C16,TRUE),"na")
N(d2) =IFERROR(NORM.S.DIST(C17,TRUE),"na")
N(-d1) =IFERROR(NORM.S.DIST(-C16,TRUE),"na")
N(-d2) =IFERROR(NORM.S.DIST(-C17,TRUE),"na")
e-rt =EXP(-C8*C7)

Value of Equity=IFERROR(IF(C4='--> Additional Info'!A3,C5*C18-C6*C22*C19,IF(C4='--> Additional Info'!A4,C6*C22*C21-C5*C20,"na")),"na")

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