In practice, firms have multiple maturities for their liabilities, so for a selected maturity T, a liability threshold L is chosen based on the whole liability structure of the firm. The liability threshold is also referred to as the default point. For a typical time horizon of one year, the liability threshold is commonly set to a value between the value of the short-term liabilities and the value of the total liabilities.Assuming a lognormal distribution for the asset returns, you can use the Black-Scholes-Merton equations to relate the observable market value of equity E, and the unobservable market value of assets A, at any time prior to the maturity T: