| Kamakura's Business Mortality Model, announced in January 2004,
provides an estimate of the one-year default probability of an individual
firm based upon current information about the firm, its economic
environment, and the current risk of the public firms in its industry. The
Business Mortality Model is part of Kamakura Risk Information Services (KRIS), a
Web-based information service available by subscription. The Kamakura
Business Mortality Model gives investors, investment mangers, dealers, traders and
auditors a simple, objective means of assessing the credit quality of
credit-risky private firms. Credit quality is measured in terms of the
probability of default of the credit-risky firm.
The Kamakura Business Mortality Model provides unique advantages and superior
results: Each firm is evaluated in the context of its industry sector. And
in addition to incorporating endogenous variables such as financial ratios
we also incorporate exogenous variables such as economic conditions and
industry risk, as recommended in
Working Paper 126 of the Bank for
International Settlements authored by Linda Allen and Anthony Saunders
Subscribers obtain default probability estimates by entering a firm's
financial and industry information into a Web form displayed in a browser.
The Business Mortality Model is based on the same default modeling approach
incorporated in the Jarrow Chava default models for public firms (KDP-jc),
which are also available through the KRIS service. Originally developed by
Kamakura's Director of Research, Robert Jarrow, this approach provides an
objective, statistically reliable method of predicting potential firm
defaults. The Federal Deposit Insurance Corporation of the United States
announced in December 2003 that it was adopting this methodology for its Loss Distribution Model
for the bank and savings and loan insurance funds.
The Business Mortality Model offers many benefits to organizations needing a
testable and reliable means for analyzing the credit quality of the entire
range of private firms. Many of these benefits are outlined in attached
brochure (PDF 99kb). Perhaps the most important benefit
in addition to accurate credit assessment is the Basle II-compliant credit
model performance tests that are required under the proposed New Capital
Accord of the Basle Committee on Banking Supervision.
Kamakura's Business Mortality Model is based on advanced statistical modeling
technology that maximizes the use of available information and provides a
high level of predictive performance. Some of the technical details of the
Model are described in the attached
brochure (PDF 99kb).
Further details on the Business Mortality Model can be obtained by contacting
Kamakura at:
Email:
sales@kamakuraco.com
Tel: 1 (808) 791-9888
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