Comparison of Merton´s model, Black and Cox model and KMV model

Abstract

Prediction of the default of the company is an important part of the interest of investors, creditors and companies. Default is considered as an event after which the company couldn´t manage to fulfill its commitment and this result in financial losses of security holders. Identification of the probability of the default can be made by several different models. The article is dedicated to the comparison of models used for the prediction of default, namely: Merton´s model, Black and Cox model and KMV model. These models are further specified with their advantages and disadvantages as well as with their use in companies.