Kamakura Corporation announced Monday that it is launching the world's first default probability service for sovereigns.
The sovereign default probabilities will be an additional service delivered alongside the public company default probabilities offered via the Kamakura Risk Information Services (KRIS) since November 2002. The new service, which has been under development for more than two years, has been developed in conjunction with a steering committee consisting of major financial institutions in North America, Asia and the EMEA region. The steering committee has been chaired by one of the largest life insurance companies in the world. The new service will offer default probabilities updated daily on 180 countries with historical default probabilities available monthly back to 1980. The KRIS Sovereign Default Service models have been estimated using a monthly data base back to 1980 under the supervision of Kamakura's Managing Director for Research Professor Robert Jarrow and Kamakura's Senior Research Fellow Professor Jens Hilscher.
"Kamakura's public firm models have now been firmly established as the state of the art in corporate default risk assessment," said Warren Sherman, Kamakura President and Chief Operating Officer. "We are very pleased to offer sovereign default probabilities in a dramatic expansion to the KRIS product line in response to strong demand from our existing KRIS clients. We are very grateful to the KRIS Sovereign Default Service Steering Committee and many other financial institutions around the world which have provided us with invaluable guidance during the development process."
The KRIS Sovereign Default Service models are estimated using a term structure of logistic regressions on a monthly data base with more than 24,000 observations and more than 160 defaults going back to January 1980. The models are of the state-of-the-art "reduced form" type, which base the default prediction on macro-economic factors and financial ratios relevant to sovereign default. The default definition used in the development of the KRIS Sovereign Default Service is consistent with the "Basel II" default definitions put forth by the Basel Committee on Banking Supervision. The KRIS Sovereign Default Service includes a KRIS Sovereign Technical Guide with the full range of model accuracy tests that are provided for corporate default probabilities as part of the Kamakura Risk Information Services subscription.