Understanding Structural Credit Models

Structural models in credit analysis focus on the relationship between a firm's asset value and its ability to service its debt. A common framework used in these models is based on the Merton model, which assumes that a firm's equity is a call option on its assets. In this context, investors can gain insights into credit risk by assessing the distance to default, which measures how far a firm’s asset value is from the default threshold.

Given this understanding, which of the following statements accurately describes a characteristic of structural credit models?