what does the merton model tell you 
the merton model allows for easier valuation of a company and helps analysts determine if it will be able to retain solvency by analyzing the maturity dates of its debt and its debt totals the merton model calculates the theoretical pricing of european put and call options without considering dividends paid out during the life of the option the model can however be adapted to consider dividends by calculating the ex dividend date value of underlying stocks the merton model makes the following basic assumptions variables that are taken into consideration in the formula include options strike prices present underlying prices risk free interest rates and the amount of time before expiration history of the merton modelrobert c merton is a noted american economist and nobel prize laureate who purchased his first stock at age 10 he earned a bachelor of science in engineering at columbia university a master of science in applied mathematics at the california institute of technology and a doctorate in economics at the massachusetts institute of technology mit where he later became a professor 1during merton s time at mit he and fellow economists fischer black and myron s scholes were all working on problems related to the pricing of options and often aided in each other s work black and scholes published a seminal paper on the topic the pricing of options and corporate liabilities in 1973 2 merton s on the pricing of corporate debt the risk structure of interest rates published early the following year described what has come to be known as the merton model 3merton and scholes were awarded the nobel prize for economics in 1997 black had died and was no longer eligible the prize committee cited them for developing a pioneering formula for the valuation of stock options their methodology has paved the way for economic valuations in many areas it has also generated new types of financial instruments and facilitated more efficient risk management in society 4their best known collaboration is often referred to today as the black scholes merton model 