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Kamakura Launches New Default Probability Service For Basel II,
Announces First Client
World's First Multiple Models Service Is
Compatible With KRM Risk System
New York (ots) - The Kamakura Corporation announced its launch of the world's first information service with default probabilities from multiple models including structural credit models and the new reduced form credit models. Honolulu-based Kamakura made the announcement yesterday at their New York Credit Risk Conference which was attended by more than 200 industry experts. Kamakura told the conference that it has already signed its first major US client and has begun delivery of the service for all listed US companies. Daily production of default probabilities begins November 4, 2002.
"The New Basel Capital Accord requires banks to provide their regulators with quantitative measures of model performance," said Dr Donald van Deventer, President and CEO of Kamakura Corporation. "Kamakura's default probability service provides an objective and consistent way of assessing model performance. All of our default probabilities come from a single source with common data sets over comparable time periods. Clients also have the option to purchase the functions and parameters that determine the default probabilities. This is a level of transparency never before offered but will greatly benefit the increasing number of clients who want complete transparency in the default probabilities they use."
Kamakura announced results based on more than 1 million observations of public companies over the 1963-2002 time period in the United States. The default database contains more than 20 times the number of observations used by major rating agencies and was compiled under the direction of Professor Robert Jarrow, Kamakura's Managing Director of Research.
"Our results indicate that reduced form models based on credit derivatives prices and bond prices have the best performance from both a statistical and a practical point of view," said Professor Jarrow. "When we fit the reduced form models to 40 years of monthly data on all US listed companies, there is no doubt that accounting and equity data in combination perform better than models based solely on equity prices" he said. "Macroeconomic factors like interest rates, exchange rates and commodity prices are also significant drivers of default. When the default probability is explicitly linked to macroeconomic factors, financial institutions can explain the causes of correlated default and the correlations with market risk. The potential for the waves of default we have seen recently in the U.S. is much more clear."
Kamakura uses its own enterprise-wide risk management software Kamakura Risk Manager to derive the default probabilities. The fully integrated credit risk, market risk, and asset and liability management KRM system has incorporated the Jarrow reduced form credit models since May, 2000. KRM's new default probabilities include those from three reduced form credit models, an advanced Merton credit model and a hybrid reduced form credit model with Merton default probabilities as an input.
The first client for Kamakura's new default probability service is a prestigious New York institution which began taking delivery of default probabilities last month.
About Kamakura Corporation
Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura is the first company in the world to develop and install a fully integrated credit risk, market risk, asset and liability management, and transfer pricing system. Kamakura has more than 40 clients ranging in size from $3 billion in assets to $1 trillion in assets. Kamakura's risk management software is currently used in the United States, Germany, Canada, Mexico, Japan, Australia, Korea, and Hong Kong.
Kamakura's research effort is led by Professor Robert Jarrow, who was named Financial Engineer of the Year in 1997 by the International Association of Financial Engineers. Kamakura management has published seven books and more than 100 publications on credit risk, market risk, and asset and liability management. Kamakura has world-wide distribution alliances with IPS-Sendero and Unisys, making Kamakura products available in almost every major city around the globe.
ots Originaltext: Kamakura Corporation
2800 Woodlawn Drive, Suite 138, Honolulu, Hawaii 96822
Web site: www.kamakuraco.com