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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

September 13, 2014
Comparing the Marginal Cost of Funds for Berkshire Hathaway with BAC and WFC

September 11, 2014
Primary Mortgage Yields Rise 0.02% and 30 Year Fixed Rate Mortgage Servicing Values Rise 0.13% This Week

September 10, 2014
Bank of America: A Pre-Stress Test Credit Risk Report Shows Dramatic Progress

September 9, 2014
Bank of America and Its High Marginal Cost of Funds

September 8, 2014
Royal Dutch Shell Bond Issue Leads the 20 Best Value Bond Trades with Maturities of 1 Year or More

September 4, 2014
Forward 1 Month T-bill Curve Twists, Jumps 0.16% to Peak at 3.33% in February, 2021

August 26, 2014
Transfer Pricing and Valuation Yield Curves without Swap Data: A KeyBank and KeyCorp Example

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


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Kamakura Blog

  

As we noted in our May 16, 2011 blog on AIG, excellence in risk management and good corporate governance requires that financial institutions analyze their own probability of default. The proposed Basel III liquidity risk ratios are concrete symbols of the regulators’ focus on default risk. This blog analyzes the funding shortfalls at Bank of America during the credit crisis.

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Excellence in risk management and good corporate governance requires that financial institutions analyze their own probability of default. The proposed Basel III liquidity risk ratios are concrete symbols of the regulators’ focus on default risk. Liquidity risk is the symptom that a firm has some other severe disease, be it credit risk, market risk, interest rate risk, fraud or something else. Default becomes inevitable when it becomes apparent that an institution cannot liquidate its assets with sufficient speed or volume to meet cash needs from liabilities that have been withdrawn (in the case of deposits) or which will not be rolled over (commercial paper, bank lines, bonds, cancelled insurance policies and so on).  For an institution which hasn’t failed, data from institutions that have failed or which have had “near death experiences” usually provide more insights on liquidity risk that the institution’s own history of liability amounts and costs.

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This blog is part two in Kamakura’s chronology of the credit crisis of 2007-2009, one of the most important eras for the study of risk management.  This blog summarizes the events that Kamakura’s risk professionals judged to be important milestones as the United States and many other countries were consumed by the credit crisis.  Today’s blog begins just prior to the collapse of Bear Stearns and ends in March 2009, the last period for which the Federal Research made public its loans during the crisis. A few milestone events after March 2009 are included as well.

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As the credit crisis recedes into history, leaving only U.S. government deficits behind, it is important to record the credit crisis history before it’s lost.  This blog summarizes the events that Kamakura’s risk professionals judged to be important milestones as the United States was consumed by the credit crisis.  Today’s blog is part one of the credit crisis chronology, ending in February, 2008, just prior to the collapse of Bear Stearns.

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10 Year Forecast of U.S. Treasury Yields And U.S. Dollar Interest Rate Swap Spreads
Today’s forecast for U.S. Treasury yields is based on the May 12, 2011 constant maturity Treasury yields that were reported by the Board of Governors of the Federal Reserve System in its H15 Statistical Release at 4:15 pm May 13, 2011. The “forecast” is the implied future coupon bearing U.S. Treasury yields derived using the maximum smoothness forward rate smoothing approach developed by Adams and van Deventer (Journal of Fixed Income, 1994) and corrected in van Deventer and Imai, Financial Risk Analytics (1996). For an electronic delivery of this interest rate data in Kamakura Risk Manager table format, please subscribe via info@kamakuraco.com.

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