By Donald van Deventer on
8/6/2009 2:44 PM
In blog posts on August 3 and August 4, we discussed some key issues and examples of sovereign defaults. In this post, we compare the data, techniques and accuracy of sovereign and public firm default models. Modeling corporate default is much easier, at least in the short run. This post explains why.
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By Donald van Deventer on
8/4/2009 10:39 PM
In our August 3 blog post, we discussed the key issues in modeling sovereign defaults. In this post, we show that the application of a “cross default” methodology to sovereign risk has a dramatic impact on the perceived timing of sovereign defaults. As Kamakura senior research fellow Jens Hilscher says, “Corporations default because they have to. Sovereigns default because they want to.” We explain the implications of that “desire to default” in this post.
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By Donald van Deventer on
8/3/2009 2:06 AM
Many investors who, three years ago, would have said they had no exposure to sovereign risk now find themselves in a much different position. With the effective nationalization of large financial institutions in the U.S. and the United Kingdom, sovereign default risk is now a critical issue. This post explains the differences between modeling sovereign default and the default risk of more traditional retail and corporate counterparties.
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By Donald van Deventer on
7/31/2009 3:19 AM
Even though risk management can be very technical, the question I am asked most often at work has nothing to do with that technology. The most frequently asked question is this: “What does Kamakura mean?” This post explains.
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By Donald van Deventer on
7/30/2009 4:00 AM
In the mid 1980s at First Interstate, I participated in serious discussions about how the Merton model of risky debt could be used to diversify credit risk. In the early 1990s, I actively marketed default probabilities based on the Merton concept in Japan. I wrote two books advocating the model in the 1990s as well. Now my view of the model has completely changed. This blog explains how and why that came about.
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