Distance to Default

The distance to default is the probability that the market value of a firm's assets falls below the value of the debt. The calculation used by EDHECinfra is in lines with the Merton (1974) model:

$$//<![CDATA[ \begin{array}{l}\displaystyle DD = N^{-1}(1 - PD1)\end{array} //]]>$$

where:

$//<![CDATA[ \begin{array}{l}DD\end{array} //]]>$ is the Distance to Default.
$//<![CDATA[ \begin{array}{l}N^{-1}(.)\end{array} //]]>$ is the inverse function of the cumulative probability of the standard normal distribution.
$//<![CDATA[ \begin{array}{l}PD1\end{array} //]]>$ is the Hard Default Probability.