merton model

[kasoker]

hi david

i notice that when u caculate d(1) u do:

(ln(v/d)+(mu-vol^/2)*t)/mu*sqrt(t)) notice - u divide by mu!! (6.d.1)

in another spreadsheet q. 39 in the sample exam u divide bu vol!!!


i think it should be divided by vol, what do you think?

help me out here the exam is comming...

thanks

ktm

 

[David Harper CFA FRM]

Hi ktm,

That was an error in my 2009 version (6.d.1) but has been corrected in 2010 version
@ http://www.bionicturtle.com/premium/spreadsheet/6.c.1_merton_model_pd_equity/

(sorry if it gives confusion; the denominator is an annualized volatility that applies the square root rule -- i.e., scale by SQRT(T) -- so you are absolutely correct)

How did the exam go, any feedback/thoughts you can share? Thanks!

David