Industry WIKI

The Merton model, is a widely used "structural" credit risk model, which was developed by American economist Robert C. Merton in 1974.

Volatility smiles are implied volatility patterns that arise in pricing financial options. It is a parameter (implied volatility) that needs to be modified for the Black–Scholes formula to fit market prices. Generally, for a given expiration, options whose strike price differs substantially from the underlying asset's forward price tend to have prices that deviate from their expected pri