[Verse 1]
Picture a company like a treasure chest sealed tight
Assets hidden deep inside, beyond our mortal sight
But shareholders hold something strange, a golden magic key
That opens up the vault one day, if debts don't bury free
[Pre-Chorus]
When the dust settles and the books are closed
Will equity survive or decompose?
[Chorus]
Merton's model shows the secret code
Equity's a call option that explodes
Strike price equals debt that's due today
Moneyness decides if stockholders get paid
Asset volatility shakes the ground
Default probability can be found
It's all about that option mathematics
Structural credit risk analytics
[Verse 2]
Black-Scholes wizardry applied to balance sheets
Firm value fluctuates like stock market beats
Bondholders get priority when liquidation calls
But equity holders gamble on the asset waterfalls
[Pre-Chorus]
Time to maturity ticks away
Will the company live another day?
[Chorus]
Merton's model shows the secret code
Equity's a call option that explodes
Strike price equals debt that's due today
Moneyness decides if stockholders get paid
Asset volatility shakes the ground
Default probability can be found
It's all about that option mathematics
Structural credit risk analytics
[Bridge]
Distance to default measures the gap
Between firm value and the debt trap
Risk-neutral probabilities emerge
As asset values dance and surge
[Final Chorus]
Merton's model shows the secret code
Equity's a call option that explodes
Strike price equals debt that's due today
Moneyness decides if stockholders get paid
Asset volatility shakes the ground
Default probability can be found
It's all about that option mathematics
Structural credit risk analytics
[Outro]
When firm value falls below the line
Equity expires, worthless by design