Kamakura Corporation reported Monday that Credit Magazine named the firm a winner of two Credit Innovation 2010 awards along with long time Kamakura business partners Thomson Reuters and Fiserv. Kamakura Corporation was the only risk management firm to win two awards. 2010 is the third consecutive year that Kamakura has been awarded a Credit Innovation award. The awards cite both the Kamakura Risk Manager enterprise wide risk management system, now in version 7.2, and the Kamakura Risk Information Services default probability service.
The Credit Innovation 2010 award went to Kamakura distributor Fiserv and Kamakura for the incorporation of multinomial logit into Kamakura Risk Manager. Multinomial logit is a powerful tool for the simulation of mutually exclusive events which can be driven by common casual factors. A classic example is the role of interest rates and home prices in driving multiple outcomes in a given month on a mortgage. The possibilities are pay as scheduled, be 1 month delinquent, be 2 months delinquent, be 3 months delinquent, be in foreclosure, make a partial prepayment, or make a fulll prepayment. David Boldon, head of business development for Kamakura Corporation, noted Monday, âMany market participants have learned in the credit crisis that the conventional wisdom, using âroll ratesâ or âtransition matrices,â cannot provide the kind of âcredit risk CAT scanâ that is necessary to accurately measure the pervasive impact of the business cycle on the full range of financial products. The incorporation of multinomial logit in KRM gives our best clients still another powerful tool to control risk, not just manage it.â
The second Credit Innovation Award was given to Thomson Reuters and Kamakura Risk Information Services for the display of KRIS default probabilities for sovereigns and public firms on the web-based Thomson Reuters Eikon service alongside credit default swap quotations so that market participants can more accurately understand the âinsurance premiumâ for providing credit protection relative to an armâs length assessment of default risk via the KRIS default probability service. Warren Sherman, Kamakuraâs president, added, âThanks to the Eikon display of CDS spreads and default risk, market participants no longer have to rely on the simple assumption that CDS spreads reflect expected loss alone. The laws of supply and demand have not been repealed in the credit default swap market. Big firms get better CDS spreads than small firms, and Japanese firms get better spreads than non-Japanese firms, all other things being equal. The Eikon service makes these considerations more obvious to sophisticated investors.â
Kamakura Corporation founder and Chairman Dr. Donald R. van Deventer explained Kamakuraâs reaction to the awards. âWe are very grateful to Credit Magazine for our third consecutive year of Credit Innovation Awards. We think this yearâs awards, for both KRM software and KRIS default probabilities, validate our argument that the best software comes from firms that are experts in measuring default risk as well. The two disciplines are inseparable. We would also like to thank our very fine partners Fiserv and Thomson Reuters for their faith in Kamakura and a modern approach to risk measurement and management. Suresh Sankaran of Fiserv and Marc Bosset of Thomson Reuters deserve our heartfelt thanks for their major role in these awards.â