Kamakura Risk Information Services (KRIS) provides risk information such as default probabilities, default correlations, implied spreads and implied ratings for a wide range of counterparties. In addition, KRIS provides the ability to do online credit portfolio modeling and analysis.
Kamakura's industry leading research coupled with its established expertise in credit technology solutions provide clients with the data, tools and insights necessary to manage the risks inherent in their portfolios and identify market opportunities.
KRIS offers industry leading quantitative credit risk measures such as default probabilities, implied spreads and implied ratings for corporate and sovereign counterparties. These measures are updated daily and available via the Web or downloadable for use with existing systems or in conjunction with the Kamakura Risk Manager Enterprise wide risk management suite.
Kamakura utilizes the KRIS default and correlation service to track a global index of more than 27,000 public companies in 30 countries to produce the company's monthly default probability reports; default predictions are based on a sophisticated combination of financial ratios, stock price history, and macro-economic factors.
KRIS is critical to risk managers, credit managers, treasurers, investors, traders and other financial decision makers in banking, insurance, investment management, corporations and governments.
Kamakura Default Probability Models
The Kamakura Default Probability Models provide investors, investment managers, dealers, traders, lenders and auditors a simple, objective means of assessing the credit quality of credit-risky public firms. Credit quality is measured in terms of the probability of default of a credit-risky firm.
Kamakura Default Probabilities
Kamakura provides default probability measures for both corporate and sovereign counterparties which can be used to assess credit worthiness of an entire credit portfolio or on a single name basis. Inputs to the Kamakura models include company specific attributes, industry related measures and relevant macro-economic factors. Independent tests have confirmed that Kamakura default probabilities have the highest performing predictive power available in the market.
Features of the Kamakura Default Probabilities (KDPs):
Kamakura Implied Spreads
Kamakura's Implied Spread model is an estimate of the credit spread of a company derived from company specific attributes, Kamakura default probabilities, industry classification and relevant macro-economic factors.
Features of the Implied Spread model are:
Kamakura Implied Ratings
Kamakura's Implied Ratings model provides a most likely agency rating for a company based on company specific attributes, Kamakura default probabilities, industry classification and relevant macro-economic factors along with the historical behavior of the rating agencies.
Features of the Implied Rating model:
Kamakura Default Correlations
Kamakura provides default correlations over its full universe of counterparties for each of Kamakura's default probability models. Different default modeling techniques and assumptions can produce varying results. As an example, the Wall Street Journal reported on August 12, 2005 about the very large hedge fund losses that occurred in May when GM and Ford were downgraded. Many traders held long positions in the bond and short positions in the common stock, a common hedging strategy for those who believe that the Merton model is an effective hedging tool. Unfortunately the Merton implication that stock prices and debt prices move in the same direction is true only about half the time and traders suffered large losses from this kind of strategy in the GM and Ford cases. For this reason, KRIS users asked Kamakura to develop pair-wise default probability correlations that go far beyond the basic Merton/Copula approach. The KRIS Web site includes coverage of 20,000 companies in 29 countries. The total number of pair wise default correlations available is more than 2.8 billion.
Credit Portfolio Analysis
KRIS Credit Portfolio Analysis provides sophisticated investors an independent, state-of-the-art ability to evaluate both the market value and loss distribution of credit portfolios and tranches of portfolios, especially those of synthetic collateralized debt obligations. The Credit Portfolio Analysis is an add-on to Kamakura Risk Information Services' KRIS-cr Version 4.1 default probabilities.
KRIS credit portfolio analysis features high ease of use due to its seamless integration with the Kamakura default probability service and its reliance on the extensive Kamakura network of multi-chip servers which perform the calculations.
KRIS credit portfolio analysis boasts a number of important features that make it unique among analytical packages, chief among them are a multiple models approach, powerful servers hosted by Kamakura in a highly secure computer facility shared with major financial institutions and agencies of the U.S. government, and repeated demonstrations as more accurate than agency ratings and agency-supplied default probabilities as a basis for default prediction.
The primary benefits of KRIS credit portfolio analysis are objective credit quality measurement, modern default correlation technology, high performance default prediction and no conflict of interest. credit portfolio modeling analyses are available via online access.
Users can choose among multiple credit portfolio simulation techniques. These techniques include the commonly used Copula/Merton approach as well as more advanced methodologies such as Macro-Factor Driven Default Probability Portfolio Modeling which can pull from 27 international macro-economic factors. Outputs include valuations, value distributions, losses and loss distributions.
Troubled Company Index
KRIS Troubled Company Index provides estimates of the full term structure of default probabilities of an individual firm based upon current public information about the firm, its economic environment, and the current risk of the public firms in its industry. Since 2002 Kamakura has been reporting its troubled company index via media outlets immediately after the end of each month.
Kamakura defines a troubled company as one whose annualized monthly default probability is more than 1.00%. The troubled company index represents the percentage of firms in the global KRIS public firm universe classified as troubled. The current troubled company index is based on more than 20,000 firms in 29 countries.
KRIS users can construct their own troubled company index using any of the five default models currently available on KRIS, and by utilizing any maturity of default probability or any probability level that the user considers "troubled." Kamakura can also aid users in creating a daily updated "expected number of defaults index" for any subset of the KRIS coverage that is of interest to the user.