The purpose of this thesis is to investigate the volatility of firm value and volatility of firm value return of 279 companies listed on the Korea Stock Exchange using the Merton model, which focus on estimate unobservable parameters, especially the firm value and the volatility of the firm value return. In this analysis, two methods are used to acquire the unobservable parameters. One method uses non-linear simultaneous equations to find the firm value and the volatility of the firm value return. The other method uses iterative method to come up with the two unobserved parameters. This study compares the movement of historical volatility of equity value with volatility of firm value , the volatility of the firm value return and the volatility of equity value of the companies using two methods for the period of 1992.06.30~ 2001.11.30. In addition, a further analysis has been performed to observe their behaviors of those parameters with cross-section and time-series. The results indicated that the behaviors of the volatilities of the firms in Korea could be explained very well using the Merton model.
