Kamakura Releases Basel II Default Probability Certification Tests for KRIS Version 4.0

HONOLULU, February 24, 2005: Kamakura Corporation announced today that it has released credit model performance tests to clients for version 4.0 of the Company's Kamakura Risk Information Services (KRIS) default probabilities. KRIS Version 4.0, which includes three different credit models, will be officially launched in the second quarter of this year. Kamakura reported that the accuracy of its reduced form and hybrid Jarrow-Merton default probability models have reached new records in terms of both in-sample and out-of-sample tests required for certification under the New Capital Accords published by the Basel Committee on Banking Supervision. Kamakura is the only vendor offering a multiple model default probability service and the only vendor with a track record of full disclosure of quantitative performance tests to clients, as Basel II requires.

"The Kamakura reduced form and hybrid default probability models have reached unprecedented accuracy in version 4.0," said Warren Sherman, Kamakura President and Chief Operating Officer. "The Kamakura Jarrow-Chava model captured 41.70% of total defaults in the top 1% of KRIS default probabilities. The hybrid model captured 40.45% of total defaults in the top 1% of KRIS default probabilities. This accuracy level is far in excess of that possible under modern Merton model technology, which is why many vendors are forced to cap their default probabilities at a low level. Kamakura clients believe that these kinds of ceilings on default probability levels obscure model performance, and we agree with their assessment. Both the Jarrow-Chava and the hybrid model, with ROC accuracy ratios in excess of 95% on the public company universe, outperform modern Merton model technology by more than 10%. The Jarrow-Chava model, for example, explains more than 85% of five year variation in defaults in out of sample tests."

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