The purpose of this thesis is to estimate yield to maturity of corporate bonds applying the Merton model using data in both the Korean corporate bond market and the Korean Treasury bond market. In this thesis, 4 different stock volatilities - daily, weekly, monthly stock volatilities and the volatility estimated by GARCH model - are used to investigate which stock volatility is the most useful in estimating firm value and asset volatility of the firm. And also sensitivity test is done to see how yields change as debt, time to maturity or stock volatility changes.
The result is that it is difficult to find certain relationship clearly between firms by those stock volatilities. However, when statistic such as RMSE(root mean square error) is calculated, the yields estimated by weekly stock volatility and volatility estimated by GARCH model is close to market yields.
