Rating Changes - Can they be predicted with the Merton model?
Purpose: The purpose of the thesis was to investigate if the Merton model had any predictive power of changes in Moody’s credit ratings and if there was a difference in the predictability between upgrades and downgrades. This was done in an effort to either support or dismiss the opinion that credit ratings are lagging. Methodology: The distance-to-default (DD) was calculated with the Merton mode