Joseph is using the options credit risk model discussed in class to analyze the risk of default of some firms. In the context of this model, he considered the statements below. Which of these statements is correct?

Group of answer choices

Firms asset volatility is an important input of this model. This asset volatility is equal to the equity volatility that can be directly calculated using data on stock returns.

Firms can default even if the value of their assets is above the face value of their debt, i.e. they are solvent. In this credit risk model, solvent firms might default if they face liquidity problems, e.g. their assets might be illiquid.

Increases in firms asset volatility do not affect the risk of default.

The model allows one to calculate the probability of default for firms. It also provides a credit score that can be used to rank firms in terms of their credit risk.