Products &
Services
Research
News
Contact Us
About
| |
Risk Consulting Services
Kamakura offers a range of consulting services related
to asset valuation, derivatives pricing, risk measurement and other
quantitative finance needs of client organizations. In providing these
services, Kamakura combines state of the art knowledge of quantitative
finance research with practical experience in financial companies and
other business organizations. Much of our knowledge is the result of
research performed by Robert Jarrow, Donald van Deventer and others, who
have produced many original and significant contributions to
quantitative finance theory and its application. (See Risk Management
Research)
Kamakura believes the ability to develop new
quantitative finance approaches through research as well as apply those
approaches in practice is critical to innovation in risk management.
Risk management is a rapidly developing discipline that depends
profoundly on finance theory, so the most effective client strategies,
solutions and financial decisions will be based on consulting advice and
results from a firm capable of offering innovative ideas and techniques.
As a leader in quantitative finance and risk management innovation,
Kamakura can deliver the advice and results that assure clients are
strong and competitive.
Delivering innovative results requires practical
experience as well as knowledge. Kamakura’s consulting team has
extensive experience both as practitioners in the banking, securities
and investment industries and as management consultants to these
industries. The team has experience in economies and cultures as diverse
as those of Japan, Mexico, France, Germany, Australia and the United
States, so we are sensitive to differences across geography and
socioeconomic systems. The team also has experience at a senior
executive level and as traders and investment bankers with major capital
and derivative market participants as well as in more technical areas
such as quantitative finance and information systems. This breadth and
depth of experience allows Kamakura to deliver the highest quality
results to clients for comparatively low consulting fees, since
individual team members can perform multiple roles in consulting
engagements.
Kamakura has delivered outstanding consulting results
to its clients for more than a decade through a wide range of consulting
engagements. Our clients have included some of the largest and most
important financial institutions in the world, but we have also worked
with small to medium sized organizations on a variety of engagements. Our primary criteria
for entering into consulting engagements have been the potential for
producing results that improve client performance and the extent to
which our knowledge and experience can be effectively employed. The
variety of Kamakura’s consulting engagements is apparent from a review
of the list at Selected Consulting Engagements.
The range of Kamakura’s consulting services is
discussed in more detail below. If your organization has needs similar
to these services, please contact the
Kamakura Consulting team.
|
Range of Consulting Services
Kamakura offers a variety of consulting services to
clients, extending from executive-level strategy to highly technical
quantitative analysis to financial advice. Although consulting
engagements usually fall into one of the categories discussed below,
clients have often engaged us for multiple services. Frequently, these
engagements have started with strategy and advanced to broad solutions
and then continued to more technical analysis. The specific services
delivered are always geared to the specific needs and resources of each
client.
|
Corporate Risk Management Strategies
Risk management is an increasingly important aspect of
the strategic management of corporations and other organizations. The
desire to maximize shareholder value and maintain a prudent level of
financial risk have emphasized the need to better understand the risks
implicit in a particular corporate strategy and to develop
organizational, process and system frameworks to support performance and
risk management. Kamakura’s strategy consulting services help clients
understand the risks inherent in their corporate strategies and assist
clients in the design of the corporate infrastructure for performance
and risk management. These services also assist clients in making
decisions on the composition and selection of their portfolio of
businesses and with related transactions, such as mergers and
acquisitions. Examples of consulting engagements where Kamakura has
provided strategic risk management advice include:
- An assessment of
the risk-adjusted profitability of the adjustable-rate mortgage
banking market in the United States for a major Canadian banking
organization. This engagement concluded that the adjustable-rate
market would be more profitable than the fixed-rate mortgage market
only if an implausible degree of irrationality by consumers existed,
resulting in the sale of the client’s U.S. mortgage banking
subsidiary;
- A review of a U.S.
Regional Bank’s existing asset/liability and risk management policies,
procedures and software systems, development of a methodology and
testing parameters for an earnings simulation model, implementation of
a matched-maturity funds transfer pricing system, and design of a
mark-to-market valuation approach for managing interest rate risk;
- A blueprint for the
organizational structure and transfer pricing system for
organizational performance measurement, development of policies and
procedures for transfer pricing, and recommendations on risk limits
for a major Japanese banking institution;
- A strategic
performance and risk management framework based on active portfolio
management and utilizing unified market and credit risk modeling
developed for and adopted by executive management of a large
Australian financial institution.
|
Risk and Performance Management Solutions
Management processes, methodologies and information
systems provide the basis for implementing risk and management
strategies. When properly designed and implemented, these capabilities
offer a “solution” to an organization’s risk and performance management
needs by integrating the capabilities in a consistent way. The solution
gives the organization a systematic and continuous ability to measure
its financial risk and performance and to undertake managerial decisions
and actions to assure tolerable risk and high performance. In practice,
developing solutions typically requires a high level of expertise in
valuation and risk measurement technology and an ability to apply that
expertise within the infrastructure of client organizations.
Kamakura has an intimate understanding of valuation
and risk measurement technology as a result of development and
application of its Kamakura Risk Manager software, which incorporates
state-of-the-art valuation and risk measurement methodologies. Kamakura
also has extensive experience in implementation of risk and performance
solutions in a wide range of client organizations. We offer this
knowledge and experience help other client organizations satisfy their
requirements for risk and performance solutions. Some examples of
consulting engagements where Kamakura has provided risk and performance
management solutions include:
- An approach to measuring and reporting on regulatory
risk exposure of a complex fixed-income and derivatives portfolio of a
major European financial institution. This approach encompassed
requirements definition, development and testing of prototype software,
and production of initial regulatory reports;
- An optimal funding strategy and a performance
measurement system for a major U.S. insurance and financial services
holding company, including the design of a transfer pricing system and
interest rate risk measurement system. Kamakura also supplied yield
curve analytics for project implementation;
- Designed the entire internal transfer pricing, risk
transfer and performance measurement system for a major Japanese banking
organization, including recommendations on organizational structure,
management processes and risk management policies and procedures. Also
assisted system implementation.
|
Risk and Performance Modeling
Quantitative finance models are the basis for valuing
and analyzing the cash flows of risky portfolio positions and for
measuring the financial risk of a portfolio. Kamakura’s research effort
under the direction of Robert Jarrow has produced some of the most
important quantitative finance models currently available. (See Risk
Management Research.) In particular, Kamakura has been instrumental in
providing models of the term structure of interest rates and other
market prices, reduced-form and structural models of the default risk of
counterparties, valuation models for complex derivative instruments,
smoothing models for interpolation of yield curves and other forward
curves, and measurement of Value-at-Risk, Cash-Flow-at-Risk and
Earnings-at-Risk. Kamakura’s capability to develop innovative new models
or enhance existing models is available as a consulting service to
clients requiring external resources for model development, testing and
application. Kamakura has extensive experience in providing modeling
services to a broad spectrum of financial services and other clients,
including the following engagements:
- Development of improved valuation and risk measurement models for a
major Japanese banking institution, covering the valuation of oil
options and futures, Hong Kong stock index futures, and bond options and
the measurement of interest rate risk;
- Development and application of models used to determine the true
interest rate sensitivity of mobile home and recreational vehicle loans
for the U.S. subsidiary of a major European banking institution.
Established the impact of interest rates on prepayment for both types of
loans and further demonstrated the impact of seasonality and loan age on
prepayment. Kamakura also designed hedging strategies to mitigate the
interest rate risk of the client’s loan portfolios; Developed models for
valuing a new type of putable “step-up coupon” deposit offered by the
Japanese postal savings system on behalf of a major Japanese banking
institution and trained client personnel in valuation analysis using the
model;
- A risk management and rating approach to the
new Japanese asset securitization market, including prototype models
for assessing the risk of asset pools and analytical training in the
use of the models, for a Japanese credit rating agency;
|
Risk Assurance and Expertise
Corporate boards and senior management of many
organizations require an independent review of current or proposed
business strategies, policies and processes prior to approving
managerial actions or decisions. Likewise, when managerial actions or
decisions within an organization or by an outside party have produced
substantial losses and pending litigation, boards and senior executives
may need to investigate the causes and extent of losses and involve
outside experts in the defense or prosecution of the matter being
litigated. When these reviews and investigations relate to the financial
risk management of an organization or other party, Kamakura can provide
the risk management expertise needed for proper review and analysis of
the issue. Examples of consulting engagements where Kamakura provided
risk assurance and expertise include:
- A review of the credit derivatives activities of a
U.S. credit insurance provider that included an audit of the valuation
methodology for credit derivatives, an examination of credit derivative
policies and procedures, tests for the accuracy of the client’s credit
derivative valuation software, and an overall certification of the
quality of credit derivative usage;
- An evaluation of risk management aspects of the $1.7
billion loss attributable to the 1994 Orange County investment pool
collapse, undertaken on behalf of the legal counsel to municipalities
opting to sue the County. The evaluation covered the risk policies and
procedures for the investment pool, broker/dealer perception of
investment pool risk, and the composition of the fixed income and
derivatives portfolio held by the pool;
- An assessment of the risk exposure and disclosure
associated with the $500 million loss in 1998 on a total return swap
arranged by JP Morgan involving SK Securities, a Korean securities firm.
This assessment was undertaken on behalf of the legal counsel to SK
Securities and involved a review of all internal risk management
documents at JP Morgan, including risk management policies and
procedures, a daily revaluation of the total return swap, an evaluation
of the fit with the risk profile and tolerance of SK Securities, and an
analysis of the JP Morgan disclosure.
|
|
