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An Introduction to Derivative Securities, Financial Markets, and Risk ManagementAdvanced Financial Risk Management, 2nd ed.

 Blog Entries

Kamakura Corporation Named to World Finance 100

August 18, 2014
More Evidence on the Funding “Subsidy” of the Too Big to Fail Banks

August 14, 2014
Mortgage Servicing Rights Values Close Mixed for the Week as Current and Forward Mortgage Rates Drop 0.03%

August 13, 2014
Liquidity At Risk – A stochastic look at cashflows

August 12, 2014
Five of Seven Regional Banks Trade at Credit Spreads Better than the Too Big to Fail Banks

August 12, 2014
Kinder Morgan Energy Partners Leads the 20 Best Value Bond Trades with Maturities of 10 Years or More

August 11, 2014
Measuring the Funding Costs of the Too Big to Fail Banks:
The U.S. Dollar Cost of Funds Index™

August 8, 2014
Forward 1 Month T-Bill Rates Plunge 0.26% in 2 Years but Forward 10 Year U.S. Treasury Yield Drops Only 0.04% from Last Week

August 6, 2014
Credit Spreads and Default Probabilities: A Simple Model Validation Example

August 5, 2014
Vodafone Group PLC: Default Risk is Down Sharply But Value Ranks in the Bottom 10% of Bonds

July 30, 2014
American International Group Inc. Bonds:
A Reward to Risk Ratio Twice as High as the Median Bond Issue

July 29,2014
AT&T Inc. Bonds: Ten Times the Risk of IBM and Below Average Value

July 15, 2014
Brazil, Italy, Spain, Credit Default Swaps and the
European Commission Short Sale Ban, 2010-2014

July 14, 2014
Bank of America and MBIA Lead U.S. Bank Credit Default Swap Trading Volume, 2010-2014

March 19, 2014
Stress Testing and Interest Rate Risk Models: A Multi-Factor Stress Testing Example

March 13, 2014
Stress Testing: A Credit Spread Ranking of 12 U.S. and 12 International Banks



Kamakura Blog


Today’s blog is a request for help from our loyal readers. I am writing on behalf of my Harvard classmate and fellow director of Kamakura Corporation, Dean V. Vance Roley of the Shidler College of Business at the University of Hawaii.  We would like to call your attention to two very generous scholarships available to students from Japan for the Masters in Financial Engineering Program at the University of Hawaii. 

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Joseph Tibman’s The Murder of Lehman Brothers is a great complement to Lawrence G. McDonald’s A Colossal Failure of Common Sense.  This blog is a reflection on Lehman and the points that Joe Tibman raises.

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Our post on October 15, 2009 on glass boxes versus black boxes has prompted a lot of feedback.  Three loyal readers provide feedback today on the danger of black boxes in risk management, why they’ve persisted as long as they have, and how risk management fits in.

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Kamakura is very proud of the joint research in credit risk that we will be undertaking with Rand Merchant Bank of Johannesburg (for details, see the News section of www.kamakuraco.com).  This brief note emphasizes how important “relationship” is when a financial institution and a vendor work together, using the Rand Merchant Bank and Kamakura credit project as an example.

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One of the many lessons from the credit crisis is that those institutions and senior management teams who didn’t understand the risks they were taking got badly burned.  As obvious as that lesson is, there are many institutions and risk managers who continue to rely on “black box” models with no ability to determine how the model works, when it will fail, and when it will succeed.  This blog explains why the era of black boxes must end and why the “glass box” is the hiply stated “new normal.”

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