In Order to Obtain the Probability of Default in the Merton

Multiple Choice

In order to obtain the probability of default in the Merton (1974) model under the real-world probability measure,we need to make the following change in calculating $N \left( d _ { 2 } \right)$ in the formula :

A) Replace $\mu$
(the firm's asset growth rate) with
$r$
(the risk-free rate) .
B) Replace $r$
With
$\mu$
)
C) Replace $\sigma$
(the firm's asset volatility) with
$d _ { 1 } \sqrt { T - t }$
)
D) Replace $d _ { 2 }$
With
$\sigma \sqrt { T - t }$
)