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KRIS Default Probabilities and CorrelationsFeatured on these product lists
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Tags: Default probabilities, Merton, reduced form, KRM, KRIS, Kamakura, Kamakura Corporation Overview
Kamakura Default ProbabilitiesKamakura 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 SpreadsKamakura'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 RatingsKamakura'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 CorrelationsKamakura 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.
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