Kamakura Corporation announced Wednesday that sovereign default probabilities are now available on the Kamakura Risk Information Services web site. The KRIS sovereign default service default probabilities, announced by Kamakura on May 19, are the world’s first commercially available sovereign default probabilities. The sovereign default probability service is seamlessly integrated with the KRIS corporate default probabilities, first offered in October 2002. The Kamakura sovereign default probabilities were developed under the direction of Kamakura Managing Director Robert A. Jarrow and Kamakura Senior Research Fellow Jens Hilscher. The default probabilities for 180 countries are now updated daily and have a term structure of default probabilities out to five years. The default probabilities are derived from a series of logistic regressions which produce default probabilities of the modern “reduced form†type, rather than the legacy Merton-style default probabilities whose performance has been called into question in the current credit crisis.
"With the recent government seizure of AAA-rated FNMA and FHLMC and the rescue of AIG, rated AAA as recently as 2005, more and more investors are abandoning ratings as a measure of default risk," said Warren Sherman, Kamakura President and Chief Operating Officer. "It is now widely recognized that the 100 year old rating system is riddled with unsolvable problems. What are the maturity and default risk associated with ratings? The agencies and ratings users are unable to articulate an answer to that simple question. The KRIS sovereign default probabilities are very specific with respect to the default probability at all monthly maturities out to five years. Kamakura updates these default probabilities daily without regard for the “relationship†to the rated entity, since KRIS default probabilities are paid for by the user, not the entity being rated. The result is greater accuracy and much greater responsiveness than ratings, which are hobbled by political considerations both in terms of the agency-issuer relationship and internal rating agency politics. Kamakura is very grateful to the major international financial institutions around the world who were instrumental in the development and design of the KRIS Sovereign Default Service."
The KRIS sovereign default service estimates default probabilities based on a monthly data base of 24,000 observations of sovereigns dating back to 1980. The service, in development for more than two years, is delivered with a proprietary Kamakura Risk Information Services Technical Guide. The Technical Guide contains an extensive array of tests of the sovereign model’s performance that are designed to achieve “best practice†status for model testing under the highest standards of corporate governance in the Basel II era.
"With the recent government seizure of AAA-rated FNMA and FHLMC and the rescue of AIG, rated AAA as recently as 2005, more and more investors are abandoning ratings as a measure of default risk," said Warren Sherman, Kamakura President and Chief Operating Officer. "It is now widely recognized that the 100 year old rating system is riddled with unsolvable problems. What are the maturity and default risk associated with ratings? The agencies and ratings users are unable to articulate an answer to that simple question. The KRIS sovereign default probabilities are very specific with respect to the default probability at all monthly maturities out to five years. Kamakura updates these default probabilities daily without regard for the “relationship†to the rated entity, since KRIS default probabilities are paid for by the user, not the entity being rated. The result is greater accuracy and much greater responsiveness than ratings, which are hobbled by political considerations both in terms of the agency-issuer relationship and internal rating agency politics. Kamakura is very grateful to the major international financial institutions around the world who were instrumental in the development and design of the KRIS Sovereign Default Service."
The KRIS sovereign default service estimates default probabilities based on a monthly data base of 24,000 observations of sovereigns dating back to 1980. The service, in development for more than two years, is delivered with a proprietary Kamakura Risk Information Services Technical Guide. The Technical Guide contains an extensive array of tests of the sovereign model’s performance that are designed to achieve “best practice†status for model testing under the highest standards of corporate governance in the Basel II era.
Become a bobsguide member to access the following
1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development
