ABOUT THE AUTHOR

Donald R. Van Deventer, Ph.d.

Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura.

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Kamakura Blog: Expanded Distribution of KRIS Default Probabilities on Reuters 3000 Xtra

04/28/2010 01:55 AM

Kamakura Corporation is very pleased to report that we have substantially expanded our relationship with the team at Thomson Reuters.  Thomson Reuters began distributing a small subset of the Kamakura Risk Information Services default probabilities in 2009.  Beginning next week, KRIS default probabilities for the 1,700 public firms with traded credit default swaps will be available on the Reuters 3000 Xtra service, along with KRIS sovereign default probabilities for 100 countries.  This expanded service will allow subscribers to the Reuters 3000 Xtra service to make daily comparisons between credit default swap quotations from Reuters and Markit with the KRIS default probabilities.  This allows investors to make a fully informed judgment about whether the risk premiums implicit in CDS spreads are sufficiently high to induce the investor to provide credit protection on that corporate or sovereign credit.

“In the early days of the credit default swap market, traders believed that the credit default swap spread equaled the default probabilities times (1 minus the recovery rate),” said Kamakura President Warren Sherman.  “Now it is well known that there is a substantial premium in credit default swap quotations, above and beyond expected loss, because the basic laws of supply and demand prevail in the CDS market just as they do across the financial markets as a whole. Our default probabilities help market participants understand the liquidity premium that results from the intersection of supply and demand. This partnership with Thomson Reuters is an exciting step forward for Kamakura and KRIS default probability service and we are very excited about it.”

For more on the Reuters 3000 Xtra service, follow this link:

http://thomsonreuters.com/products_services/financial/financial_products/equities_derivatives/americas/3000_xtra

For questions regarding the Reuters 3000 Xtra service, please contact Marc Bosset of Thomson Reuters at marc.bosset@thomsonreuters.com.

The full universe of KRIS public firm default probability coverage is 29,200 public firms in 32 countries. A total of 183 sovereign credits are covered by the KRIS sovereign default service.  For more information on KRIS default probabilities, see www.kamakuraco.com or contact us at info@kamakuraco.com.

Over the last 3 years we have published a number of articles on the relationships between credit default swap quotes and default probabilities.  Most of these publications can be found on the blog at www.kamakuraco.com:

Jarrow, Robert A., Li Li, Mark Mesler, and Donald R. van Deventer, “The Determination of Corporate Credit Spreads,” RISK Magazine, September, 2007.

van Deventer, Donald R. “CDS Spreads and Default Probabilities: What is the Linkage?” Kamakura blog, www.kamakuraco.com, March 18, 2009.

van Deventer, Donald R. “Using CDS Spreads and Default Probabilities for Best Relative Value Credit Investments,” Kamakura blog, www.kamakuraco.com, June 9, 2009.  Redistributed on www.riskcenter.com on June 10, 2009.

Robert A. Jarrow, Li Li, Mark Mesler, and Donald R. van Deventer, “The Determinants of Corporate Credit Spreads: An Update,” Kamakura blog, www.kamakuraco.com, September 23, 2009.  Redistributed on www.riskcenter.com on September 24, 2009.

We look forward to your comments and suggestions on the Reuters 3000 Xtra service and the links between KRIS default probabilities and credit default swap spreads.

Donald R. van Deventer
Kamakura Corporation
Honolulu, Hawaii
April 29, 2010

 

ABOUT THE AUTHOR

Donald R. Van Deventer, Ph.d.

Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura.

Read More