{"status":"ok","message-type":"work","message-version":"1.0.0","message":{"indexed":{"date-parts":[[2026,10,12]],"date-time":"2026-10-12T16:45:38Z","timestamp":1791823538234,"version":"4.3.4"},"posted":{"date-parts":[[2026]]},"group-title":"SSRN","reference-count":0,"publisher":"Elsevier BV","license":[{"start":{"date-parts":[[2026,1,1]],"date-time":"2026-01-01T00:00:00Z","timestamp":1767225600000},"content-version":"unspecified","delay-in-days":0,"URL":"https:\/\/creativecommons.org\/licenses\/by-nc-nd\/4.0\/"}],"content-domain":{"domain":[],"crossmark-restriction":false},"short-container-title":[],"abstract":"<jats:p>Climate transition risk poses unprecedented challenges to corporate debt valuation and financial stability. This paper extends the classical structural Merton model by incorporating climate transition shocks and stochastic asset volatility into firm-value dynamics. We formalize how carbon pricing mechanisms, regulatory penalties, and shifting consumer preferences alter the asset value drift and volatility structure of carbon-intensive firms. Using simulated corporate balance sheet data and market parameters, we evaluate the impact of carbon taxation paths on default probabilities and credit spreads. Our results indicate that standard Merton models severely underprice default risk for firms with high carbon emission intensities over medium-to-long horizons. We provide Python implementation routines and robust empirical recommendations for risk managers and regulators.<\/jats:p>","DOI":"10.2139\/ssrn.7596720","type":"posted-content","created":{"date-parts":[[2026,10,12]],"date-time":"2026-10-12T15:53:58Z","timestamp":1791820438000},"source":"Crossref","is-referenced-by-count":0,"title":["Integrating Climate Transition Risk into Structural Credit Risk Models: A Dynamic Merton Framework with Stochastic Volatility"],"prefix":"10.2139","author":[{"ORCID":"https:\/\/orcid.org\/0009-0007-8475-2558","authenticated-orcid":true,"given":"Henry","family":"Mayambu","sequence":"first","affiliation":[],"role":[{"vocabulary":"crossref","role":"author"}]}],"member":"78","container-title":[],"original-title":[],"deposited":{"date-parts":[[2026,10,12]],"date-time":"2026-10-12T15:53:58Z","timestamp":1791820438000},"score":1,"resource":{"primary":{"URL":"https:\/\/www.ssrn.com\/abstract=7596720"}},"subtitle":[],"short-title":[],"issued":{"date-parts":[[2026]]},"references-count":0,"URL":"https:\/\/doi.org\/10.2139\/ssrn.7596720","relation":{},"subject":[],"published":{"date-parts":[[2026]]},"subtype":"preprint"}}