We examine the accuracy and contribution of the Merton distance to default (DD) model, which is based on Merton's (1974) bond pricing model. We compare the model to a "naive" alternative, which uses ...

Leading researchers in finance have been near-unanimous in their conclusion that modern "reduced form" default probabilities are more accurate than the 1974 Merton model.

This paper investigates the information in corporate credit ratings. If ratings are to be informative indicators of credit risk, they must reflect what a risk-averse investor cares about: both raw ...