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<p>In this paper, we present a novel structural credit risk model that is based on the Merton model to address the challenge of assessing default risk for firms with non-market-traded operational assets. Specifically, we introduce a model where the firm’s average temporal revenue and operating expenses are represented as time integrals of an increasing function of depreciating operational assets, with the actual rates of change fluctuating stochastically. Using this setup, we discuss how to determine the debt face value and corresponding credit spread within this framework, and we outline a numerical method for these calculations based on the Merton model. Additionally, we introduce another model in which the uncertainty of the firm’s total profit is assumed to follow Johnson’s SU distribution, and we suggest the firm’s debt valuation procedure for this alternative approach. We demonstrate some numerical experimental results for the two models and discuss the properties of these models in terms of assessing default risk.</p>

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A novel extension of the Merton model for default risk assessment in firms with non-market-traded operational assets

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  • 出版模式：

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  • 发表日期：

    2025年7月9日

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  • Hidetoshi Nakagawa,
  • Suguru Yamanaka

摘要

In this paper, we present a novel structural credit risk model that is based on the Merton model to address the challenge of assessing default risk for firms with non-market-traded operational assets. Specifically, we introduce a model where the firm’s average temporal revenue and operating expenses are represented as time integrals of an increasing function of depreciating operational assets, with the actual rates of change fluctuating stochastically. Using this setup, we discuss how to determine the debt face value and corresponding credit spread within this framework, and we outline a numerical method for these calculations based on the Merton model. Additionally, we introduce another model in which the uncertainty of the firm’s total profit is assumed to follow Johnson’s SU distribution, and we suggest the firm’s debt valuation procedure for this alternative approach. We demonstrate some numerical experimental results for the two models and discuss the properties of these models in terms of assessing default risk.