18 January 2018
visit www.ebaday.com

Kamakura adds implied CDS quotes to KRIS

27 January 2006  |  1744 views  |  0 Source: Kamakura

Kamakura Corporation today announced a dramatic expansion of its Kamakura Risk Information Service default probability and correlation service.

The KRIS service now includes implied credit default swap quotations for 16,000 corporations in 25 countries covered by the KRIS service. At the same time, Kamakura announced that it has more than doubled the number of company-by-company default correlations to more than 2.8 billion pairs of companies. This allows users to avoid the common but dramatically incorrect assumption that all pairs of companies in a portfolio or collateralized debt obligation tranche have the same default correlation.

CDO analysts have been forced to make simple assumptions about default correlations and credit spreads because of a lack of data. Research by Kamakura and many others shows that credit spreads are not determined by default probabilities and recovery rates alone," commented Warren Sherman, Kamakura President and Chief Operating Officer. "The premium in credit spreads above and beyond the loss component is a function of market conditions, macro-economic factors and other company-specific information. Kamakura's implied credit default swap quotations reflect this reality as observed in a data base of more than 500,000 credit default swap bids, offereds and traded prices. This credit spread information, combined with our dramatically expanded default correlation capability, gives KRIS users and users of the Kamakura Risk Manager enterprise wide software package unparalleled accuracy in modeling total risk and correlated default in the manner recommended recently by Dr. John Frye of the Federal Reserve Bank of Chicago. The simple copula approach and the related assumption that all pairs of companies have the same default correlation lead to the kind of losses outlined in the Wall Street Journal on August 12, 2005. KRIS offers clients a much more accurate spread and correlation technology."

The implied credit default swap quotes are an add-on to the basic KRIS default probability and correlation service. Bid, offered and traded CDS prices are calculated using a hybrid model developed by Kamakura. This hybrid model incorporates the KRIS reduced form default term structure and its inputs, a Merton structural model default probability, ratings, and macro-economic factors. CDS quotations are available for 1, 2, 3, 4, 5, 7 and 10 year maturities.

The default correlations are consistent with a recent paper by Kamakura's Professor Robert Jarrow and Dr. Donald R. van Deventer (RISK Magazine, January 2005) and a subsequent article by Dr. John Frye in the July issue of RISK.

Comments: (0)

Comment on this story (membership required)

Related company news

 

Related blogs

Create a blog about this story (membership required)
visit www.fivedegrees.nlvisit www.thomsonreuters.infovisit www.ebaday.com

Top topics

Most viewed Most shared
Buffett rubbishes cryptocurrencies; South Korea preps exchange crackdownBuffett rubbishes cryptocurrencies; South...
11853 views comments | 16 tweets | 17 linkedin
Europe begins Open Banking era in subdued styleEurope begins Open Banking era in subdued...
10142 views comments | 32 tweets | 35 linkedin
Crypto mining threatened by power capacity concernsCrypto mining threatened by power capacity...
9844 views comments | 17 tweets | 18 linkedin
Exchanges call for global fintech standardsExchanges call for global fintech standard...
9536 views comments | 17 tweets | 14 linkedin
Wells Fargo to close 900 branchesWells Fargo to close 900 branches
9466 views comments | 14 tweets | 16 linkedin

Featured job

Competitive base + commission (double OTE)
London, UK

Find your next job