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Hard · risk_management · Quant Researcher interview question · merton_model, distance_to_default, structural_credit, credit_risk, risk_management
The Merton (1974) structural model views a firm's equity as a European call option on its assets, providing a framework to assess credit risk. Distance-to-Default (DtD) measures how many standard deviations the firm's asset value is from its default point. This metric is a cornerstone in credit risk management, used for default probability estimation and in early-warning systems. Task Implement the function merton_dtd(equity_value, equity_vol, face_value, risk_free, T, n_iter) to calibrate the