Hi Guys Just wanted to check if I am understanding this correctly. The value of of a corporate bond according to Merton’s structural model is equal to the value of a corresponding risk-free bond less a put option on the value of the company’s assets. The value of the risk-free bond is observable in the market, however how do we determine the value of the put option? Can I use a put call parity relationship where the call option value is equal to the current share price? This is because the share price is defined as a call option on the value of the company’s assets.
Text recommend to use Black-Scholes to find the value of the option. If they ask any question related to it in the exam, value of call will be given.