  This paper is a contribution to the Proceedings of the Workshop
  Complexity, Metastability and Nonextensivity held in Erice 20-26 July 2004,
to be published by World Scientific. We propose a generalization to Merton's
model for evaluating credit spreads. In his original work, a company's assets
were assumed to follow a log-normal process. We introduce fat tails and skew
into this model, along the same lines as in the option pricing model of Borland
and Bouchaud (2004, Quantitative Finance 4) and illustrate the effects of each
component. Preliminary empirical results indicate that this model fits well to
empirically observed credit spreads with a parameterization that also matched
observed stock return distributions and option prices.
