Kamakura Risk Manager Version 7.0 Captures Exposure to Home Price Risk

13 August 2008

Honolulu-based Kamakura Corporation announced today that version 7.0 of its enterprise-wide risk management system Kamakura Risk Manager (KRM) has been released to clients world-wide. The new release includes KRM-Risk Portal version 2.1, the KRM web-based reporting system for credit risk, market risk, asset and liability management, and Basel II reporting. KRM version 7.0 has been in production to assess home price risk on very large portfolios in North America since last August. Kamakura Risk Manager version 7.0 enhancements reflect substantial new code related to Basel II standard reporting, credit-related simulations, expanded ALM new business and rollover capabilities, and hedge effectiveness testing under International Accounting Standard 39 and FAS 133.

"Kamakura Risk Manager version 7.0 offers our KRM users around the world a substantial improvement in speed and comprehensive risk analysis," commented Warren Sherman, Kamakura President and Chief Operating Officer. "Even on a single chip machine, KRM 7.0 runs 33% faster than version 6.x. With a fully multi-threaded set of servers, the speed reduction is even more impressive. At the same time, KRM 7.0 offers a much more comprehensive set of market risk, credit risk, ALM, Basel II and hedge accounting capabilities but it has 19% fewer lines of code than version 6.x."

“The first lines of code in Kamakura Risk Manager were written more than 18 years ago,” said Dr. Donald R. van Deventer, Kamakura Chairman and founder. ”This new version represents the very best of 200 man years of effort by Kamakura’s development group and Kamakura Risk Information Services team members. Most importantly, the Kamakura users group continues to guide our development path very skillfully. Senior management needs a complete understanding of their firm’s exposure to home price risk, oil price risk, interest rate risk, and foreign exchange risk. We are very proud of the performance of Kamakura clients in this credit crisis relative to the clients of legacy vendors of silo risk systems.“

Selected new features in Kamakura Risk Manager version 7.0 include the following:

• Expanded reporting of counterparty attributes for the Basel II standardized approach
• KRM 7.0 reports random default rates used for each counterparty in each scenario and time period used in the simulation
• KRM 7.0 allows a user-defined proportional shift in default probabilities across the board
• KRM 7.0 allows a user-defined lag in the collection of recovery amounts on defaulted instruments
• KRM 7.0 allows a term structure of macro factors and the age of the instrument to affect the default probability in future time periods
• KRM version 7.0 also includes several updates to enable expeditious implementation for the Basel Standardized (STD) approach, as outlined in Capital Requirements Directive (CRD) and the Prudential Sourcebook for banks, building societies and investment firms (BIPRU)
• KRM version 7.0 also includes a substantial increase in output relating to hedging and hedge effectiveness under IAS39 and FAS 133 standards. These enhancements are focused on impairment and hedge effectiveness measurement and reporting.
• KRM-rp version 2.1 has been broadened to adhere to the common reporting standards (COREP) specified for Basel II
• KRM-rp now includes local regulatory Basel II reporting standards, such as those required by the Hong Kong Monetary Authority.
• Expanded interest rate index functionality for modeling securities where the interest rate is a function of the age of the loan or security
• Addition of zero coupon amortizing loan and security type
• Addition of synthetic collateralized debt obligations. Cash flow CDOs have been in KRM since 2003
• Calculation of common Black-Scholes risk measures delta, gamma, theta and vega even when Black-Scholes is not the valuation method for marking to market
• Expanded output of monte carlo simulation results to the KRM output data tables
• Substantial enhancements to the KRM security administrator for even stronger systems security
• Expanded stress testing capability based on user-defined accounting periods on an exact day-count basis
• Expanded simulation of loan losses based on Emerging Issues Task Force (EITF) 99 and other methods
• Expanded capabilities for balancing simulated assets and liabilities
• Increased alternatives for reinvestment of cash flow generated in simulations, including the reinvestment of cash flow by credit quality level
• Additional of two new historical value at risk methodologies. The first employs the historical absolute changes in securities prices and the second is a monte carlo sampling from historical prices themselves. KRM now has a total of seven different VAR methodologies available.
• KRM 7.0 also reports marginal value at risk for each transaction as standard output and expands reporting on “tail risk” on a credit-adjusted basis
• Expansion of KRM security features to allow KRM to run in secured mode on virtual machine-based servers
• Support for MS SQL 2000, MS SQL 2005, and Oracle 10G R2 relational data base management systems on 64-bit servers
• Substantial improvements in KRM speed due to in-memory simulation of new business and cash flow reinvestments, use of multi-threading for data base insertions, and bulk data base insertions for all major KRM calculations
• The KRM Security Administrator KRM-sa has been substantially modified to now allow users to create customized upgrade scripts from any earlier version of KRM to 7.0.

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