What is credit suggesting equity will do? May 17 2024

Framing credit as an option problem lets one use "persistence" to get a sense of the underlying... Russell 2000 towards 3000 is suggested.

The underlying to credit as an option problem based on Merton’s perception of a corporate debt as a short call on the firms enterprise value (EV) of the firm’s equity value plus the liability value, with equity being a long call on the EV, has one of the main driving forces as in any option problem being volatility of EV.

Currently a Merton stochastic framing of BBB credit spread suggests Russell 2000 will rise 30% towards record highs of 3000.