âKRIS-CDO provides CDO investors and structurers with a powerful and easy-to-use tool that provides real insight into the risks faced in the CDO market," said Warren Sherman, Kamakura President and Chief Operating Officer. âOur clients have told us clearly what features are critical to them. They want a seamless integration between default probabilities and analysis. They want to change default models with a mouse-click. They want a more sophisticated analysis of default correlation than one which assumes all pairs of companies have the same default correlation. They want a rich multiperiod calculation that recognizes defaults are spread over time, not bunched at the beginning or end of a single period analysis. Finally, they want control over the degree to which the business cycle and macroeconomic factors move default probabilities up and down over the credit cycle. Thatâs what KRIS-CDO delivers.â
The KRIS-CDO service is currently focused on synthetic CDOs. For more complex CDO structures such as those with complex collateral, Kamakura has offered CDO analytics in its enterprise risk management system KRM since 2003. The KRIS-CDO service offers four choices for default modeling: default probabilities randomly sampled from history, default probabilities consistent with the Merton model, default probabilities derived using the âreduced formâ approach, and special macro economic factor-linked default probabilities. Scenario analysis and multi-period simulations are standard. Users have access to the Kamakuraâs multiple probability models and term structures of default from within KRIS-CDO.