Answer: can explain the economic reason for default.

## Explanation **Structural form models** (also known as firm-value models) of corporate credit risk: - **Option B is correct**: Structural models can explain the economic reason for default. These models view equity as a call option on the firm's assets and default occurs when the firm's asset value falls below its debt obligations. - **Option A is incorrect**: Structural models treat default as an endogenous variable, not exogenous. Default is determined by the relationship between the firm's asset value and its debt level. - **Option C is incorrect**: Structural models do require an estimate of the company's asset volatility to implement. In fact, volatility is a key input in these models. **Key characteristics of structural models:** - Based on Merton's option pricing framework - Default occurs when firm value falls below debt value - Can explain why default happens (economic fundamentals) - Require estimates of firm value and volatility - Provide economic intuition for credit risk

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