• edf
• Fitch
• Moody's
• default
• default probability
• Merton
• distance to default

In recent years, the effects of the economic crisis, together with the advances in the fields of corporate debt products and credit derivatives, generated a renewed interest for credit risk models. In the last decade, academics and practitioners developed new models in order to assess the quality of a firm in terms of its ability to repay its debt in the future, or, more specifically, in terms of its probability of default. Among these new models, an innovative one is the Merton model of distance to default, which is based on the Black-Scholes-Merton option pricing theory and makes use of market information to calculate the firms default probability.
This Thesis deals with this particular kind of models, both by presenting a general review of the main advances in the recent literature, both by directly testing this model, calculating the distance to default of a population of large international publicly traded companies. The data used in this work are provided by a relevant Italian bank, and the whole research has been conducted during a six-months internship program at the bank itself.