KAMAKURA ON-LINE PROCESSING SERVICES

Kamakura recognizes that many financial institutions and corporations need risk management results without the expense and bureaucracy associated with the purchase, installation and operation of a third-party risk management software system.
Kamakura On-Line Processing Services (KOPS) was launched in June, 2000 with a number of special features that make KOPS by far the best way to get professional risk management analytics with a minimum of expense:

• You can send us data in your format, not ours. We’ll do the rest.
• We send you the results in your format, not ours.
• We offer next day turn-around time for regular KOPS users and real-time capability on request.
• There is no limit, large or small, on the number of transactions we can process. We have clients processing many millions of transactions.

Who Should Use KOPS for Risk Management Processing?

Many institutions would benefit from using KOPS either on a one-time basis or on a regular basis:

• Institutions who need to provide certification for Financial Accounting Standard 133 (FAS 133) but don’t have the time, staff or software to do so on their own
• Institutions who are considering a merger and need risk analytics for due diligence purposes
• Institutions who are currently relying for valuation on third parties with a conflict of interest, like securities dealers who sold the transactions being valued to the institution
• Institutions who are too understaffed to operate third party risk software themselves
• Institutions who are interested in Kamakura’s world-famous risk analytics but who would like to see the quality and breadth of the Kamakura Risk Manager software system in operation on their data before making a purchase decision
• Institutions who are too busy to map data to conform to someone else’s specifications
• Institutions who would like to have some of the world’s best risk managers overseeing their risk analytics without paying their salaries
• Institutions who face a difficult risk management issue internally that would benefit from a third-party analysis
• Institutions who need a third-party “audit” of valuation, value at risk or net income simulation produced by internal staff
• Institutions who need an “audit” to check some other third party software package

Why Use Kamakura Instead of Another Application Service Provider?

Kamakura is the most reliable risk processing service provider for many reasons:

• The quality of the numbers matters. We have analytics overseen by Professor Robert Jarrow, 1997 IAFE Financial Engineer of the Year
• We make the software that does the work. We don’t have to rely on a third party to produce analysis for you.
• We’ve worked for all five of the five largest banks in the world. We’ve advised on the resolution of the Orange County incident. We’ve helped straighten out a $500 million derivatives dispute.
• We make it easier. Just send us your data and we’ll do the rest.
• We produce the information that others use to drive their risk analysis. See our Kamakura Risk Information Services for more information.
• We’ve written six books and 100 academic articles.

Kamakura On-Line Processing Services: Products and Pricing

KOPS products and pricing are just like Kamakura’s software. You can select from a menu to get the mix that you need at the price you want. If you need risk analytics that you don’t see on this list, please contact us and we’ll quote you a price for special processing. We never say no.

KOPS-cr (Credit Risk Processing Service)

You send us data on your portfolio and counterparties and this is what you get back:

• Expected losses and default probabilities on each counterparty that has observable debt or equity securities outstanding
• Credit adjusted value at risk
• Credit adjusted valuation
• Credit adjusted hedges for the portfolio
• Mark to market credit losses (replacement cost minus credit adjusted value)
• Measures of the adequacy of your reserve for loan losses
• Stress testing with respect to
• Parallel yield curve shifts
• Non-parallel yield curve shifts
• Interest rate volatility shifts
• Shifts in the speed of mean reversion, which affects the depth and severity of rate cycles

All of this information is produced by our software module KRM-cr.

KOPS-var (Value at Risk Processing Service)

Why do your own VAR processing when we can do it for you much more quickly? All of the KOPS-var information is produced by our software module KRM-var. Here are the reports offered with this service:

• Full option-adjusted monte carlo-based value at risk
• “Matrix” or variance-covariance value at risk
• Historical value at risk
• Value at risk for all common percentile measures
• Value at risk for any combination of organizational units and products
• Values for every transaction for every VAR scenario
• Results are provided in electronic form that is reusable by any common spreadsheet software (depending on the volume of transactions).

KOPS-mv (Option-Adjusted Market Valuation Processing Service)

If you need a quick, accurate, and unbiased valuation of a complex portfolio, we can do it for you to the highest quality standards. We have no conflict of interest and the highest quality analytics for the valuation of complex retail and wholesale financial transactions, ranging from retail loans with embedded caps, floors and call provisions to exotic derivatives. All of the information in KOPS-mv is provided by our software module KRM-mv.

• Full option-adjusted multi-currency valuation
• Interest rate hedges for the portfolio
• Mark to market gains or losses
• Stress testing of valuation with respect to
• Parallel yield curve shifts
• Non-parallel yield curve shifts
• Interest rate volatility shifts
• Shifts in the speed of mean reversion, which affects the depth and severity of rate cycles

Results of KOPS-mv are also provided in electronic form that is reusable by any common spreadsheet software (depending on the volume of transactions).

KOPS-ni (Net Income Simulation Processing Service) 

Kamakura’s new net income simulation module KRM-ni is combined with KRM-mv and the information in KOPS-mv to produce the full suite of state of the art bank risk management analytics:

• Full option-adjusted net income projections
• Full option-adjusted multi-currency valuation
• Interest rate hedges for the portfolio market value
• Mark to market gains or losses
• Stress testing of net income simulation with respect to
  • Parallel yield curve shifts
  • Non-parallel yield curve shifts
  • Interest rate volatility shifts
  • Shifts in the speed of mean reversion, which affect the depth and severity of rate cycles
• Stress testing of valuation with respect to
  • Parallel yield curve shifts
  • Non-parallel yield curve shifts
  • Interest rate volatility shifts
  • Shifts in the speed of mean reversion

Results of KOPS-ni are also provided in electronic form that is reusable by any common spreadsheet software (depending on the volume of transactions).

KOPS-yc (Yield Curve Processing Service)

Kamakura offers daily forward rates, zero coupon bond yields, zero coupon bond prices, and par bond yield curves for both bullet and amortizing principal transactions on its Kamakura Risk Information Service. If you would like similar output for a yield curve not covered by KRIS, you don’t even have to send us the data. Just tell us the name of the yield curve, the output frequency (say daily) and the output types and we’ll send you the results. All of the output is provided by our software module KRM-yc. The calculations options are the same as in KRIS: 

• Monthly Par Coupon Bond Yield Curves
• Quarterly Par Coupon Bond Yield Curves
• Semi-annual Par Coupon Bond Yield Curves
• Monthly Amortizing Par Coupon Bond Yield Curves
• Quarterly Amortizing Par Coupon Bond Yield Curves
• Semi-annual Amortizing Par Coupon Bond Yield Curves
• Monthly Forward Rates
• Quarterly Forward Rates
• Semi-annual Forward Rates
• Zero Coupon Bond Prices
• Zero Coupon Bond Yields

There are six smoothing methods that can be used to produce this information:

• Maximum Smoothness Forward Rate Approach.
• Cubic Spline of Zero Coupon Bond Yields (y’=0).
• Cubic Spline of Zero Coupon Bond Yields (y” =0)
• Cubic Spline of Zero Coupon Bond Prices (y’=0).
• Cubic Spline of Zero Coupon Bond Prices (p”=0)
• Linear Smoothing of Zero Coupon Bond Yields

For more on the smoothing methods, please see KRM-yc and Kamakura Risk Information Services or Chapter 2 of Financial Risk Analytics: A Term Structure Model Approach for Banking, Insurance and Investment Management.

KOPS-dc (Non-Maturity Deposit and Credit Card Valuation Processing Service)

Sophisticated asset and liability managers often come to the conclusion that the interest rate risk of “non-maturity” deposits like demand deposits or savings deposits by themselves fully determines the direction of the bank’s interest rate risk picture. The same can be true of revolving consumer credit facilities like charge cards. Kamakura’s Robert Jarrow and Donald R. van Deventer are very well known for their research in this area with publications featured in Risk Magazine, the Journal of Banking and Finance, and the Journal of Derivatives.

Kamakura has found that non-interest expense and long-run growth of the asset or liability are the key drivers (like implied volatility in the Black-Scholes options model) of non-maturity valuation and interest rate risk. Therefore KOPS-dc results focus on the sensitivity of results to these two factors in great detail. KOPS-dc results are produced by the Kamakura software module KRM-dc.

• Full non-maturity deposit or credit card valuation
• Interest rate hedges for the non-maturity deposit or credit card class
• Mark to market gains or losses on the item
• Stress testing of valuation and interest rate risk with respect to
  • Parallel yield curve shifts
  • Non-parallel yield curve shifts
  • Interest rate volatility shifts
  • Shifts in the speed of mean reversion, which affects the depth and severity of rate cycles
• Stress testing of valuation and interest rate risk with respect to
  • Long run growth of the non-maturity account
  • Non-interest expense associated with the processing of the account

Data needs for KOPS-dc processing are very simple. We need the balance and the rate for as much history as you have, in any format. That’s all! If your institution has experienced mergers during that period, please let us know the dates. Anything else you could tell us about the nature of the item being valued would help us too.

KOPS-tp (Transfer Pricing Processing Service)

Kamakura’s yield curve smoothing analytics allow clients to use KOPS to assign transfer prices for profitability measurement in financial institutions, whether the transaction in question is a loan, a deposit, an annuity or a life insurance policy. KOPS produces “matched maturity” interest rates for the loan, deposit, annuity, or life policy in question with the identical amortization and payment frequency as the underlying transaction. Two different types of yield curves can be used to generate transfer prices. KOPS transfer prices can be calculated on a risk-free yield curve basis (say U.S. Treasury yield curve) to measure the full “credit spread” on a transaction. Alternatively, the financial institution’s cost of funds yield curve can be used to measure interest earnings or savings versus that cost of funds curve.

The six smoothing methods used to produce this information are described above in KOPS-yc. Transfer prices are written to a file consisting of the transaction number and the transfer price so that the client can then in turn supply this information to its internal profitability measurement system. The KOPS-tp service is available now. The Kamakura software module which performs this function on client sites is called Kamakura Risk Manager-Transfer Pricing (KRM-tp). Please see KRM-tp for more information.

Custom Processing

Any output that Kamakura Risk Manager produces can be made available on KOPS. Space doesn’t permit us to list all of the output available, so if there is something you want that wasn’t listed here, please e-mail us at sales@kamakuraco.com and we’ll confirm whether we can do it right away or whether it would take us some time to produce the output you need.

KOPS Reports and Output Data Format

Reports produced as part of the KOPS service can be made available in common spreadsheet format (if the size of the information process doesn’t exceed spreadsheet limits), in Crystal Reports, or in web HTML format. If you need a special report format, just let us know. Data is also made available to KOPS clients in either Microsoft Access or relational data base management systems.

Placing an Order

Please send us an email at sales@kamakuraco.com. Kamakura will send you an electronic copy of the Kamakura On-Line Processing Services contract.

For further information please contact

Kamakura On-Line Processing Services Department
Kamakura Corporation
2800 Woodlawn Drive, Suite 138
Honolulu, Hawaii 96822
Telephone: 1-808-539-3830
Facsimile: 1-808-539-3748
e-mail: sales@kamakuraco.com

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