Application of structural models in Credit Risk

In last years (especially after the financial crisis in 2008), there is a great emphasis on the correct state of the credit risk. The most commonly used method is probably the portfolio model CreditMetrics. Very sophisticated methods, based on the options theory, especially on Merton's model (1974), are structural models. The paper focuses on the application of the structural models in credit risk. Specially, a KMV model will be used at a few Czech firms. First there will be described the main approach of Merton models with details of KMV model. In the application part there is calculated the default probability, using this model. In conclusion, the results are evaluated.