We consider a system where the asset values of firms are correlated with the default thresholds. We first evaluate the probability of default of a single firm under the correlated assets assumptions. This extends Merton’s probability of default of a single firm under the independent asset...

This paper presents a structural model of default risk under macroeconomic conditions. The macroeconomic conditions are assumed to be a finite state of a Markov chain. The innovation of our model is to characterize the firm default, the default-free pure discount bond price, the defaultable bond...