Evaluating Creditworthiness of Borrower Using Merton’s Model. Prediction of Company’s Default on Arbitrary Time Interval and Assesses the Extent of Model’s Adequacy

The credit rating of the borrower is an integral part of modern business. In conditions of modern realities, it is necessary to assess the creditworthiness of all, for example, in the case of the acquisition of foreign currency, investing in shares of companies, funds, opening of a loan, deposit and other. Credit reliability of debtors becomes a cornerstone for business interests and for a growing number of frightened creditors. In this paper, we discuss the main advantages and disadvantages of the Merton model, which makes it possible to assess the probability of default of a company for an arbitrary period of time, assessing the company's creditworthiness. We will also apply the model to the largest Russian companies, after which we will evaluate the reliability of the model and draw a conclusion about how well this model works.