Kamakura Default Probabilities
Kamakura provides default probability measures for public firms, non-public firms, U.S. banks, and sovereign counterparties which can be used to assess credit worthiness of an entire credit portfolio or on a single name basis. Inputs to the Kamakura models include company specific attributes, industry related measures and relevant macro-economic factors. Independent tests have confirmed that Kamakura default probabilities have the highest performing predictive power available in the market.

Features of the Kamakura Default Probabilities (KDPs):

• Multiple Models approach
• Highest performing predictive power available in market
• Transparent, testable, reliable
• Full term structure of default
• Public firm, non-public firm and sovereign models
• Daily updates

Kamakura Implied Spreads
Kamakura’s Implied Spread model is an estimate of the credit spread of a company derived from company specific attributes, Kamakura default probabilities, industry classification and relevant macro-economic factors.

Features of the Implied Spread model are:

• Provides coverage of public firms when no spreads are available in market
• Full term structure of spreads for bid, offer and trade
• Calibrated to actual market spread data
• Updated daily

Kamakura Implied Ratings
Kamakura’s Implied Ratings model provides a most likely legacy rating agency rating for a public firm based on company specific attributes, Kamakura default probabilities, industry classification and relevant macro-economic factors along with the historical behavior of the legacy rating agencies.

Features of the Implied Rating model:

• Provides implied rating for public firms where ratings not publicly available
• Full probability distributions for a given legacy rating agency ratings based on both company specific attributes and relevant macro-economic factors
• Probabilities of rating upgrades and downgrades.
• Benchmarked against actual historical rating agency assignments
• Updated daily

Kamakura Default Correlations
Kamakura provides default correlations over its full universe of public firm counterparties for each of Kamakura’s default probability models. Different default modeling techniques and assumptions can produce varying results. As an example, the Wall Street Journal reported on August 12, 2005 about the very large hedge fund losses that occurred in May when GM and Ford were downgraded. Many traders held long positions in the bond and short positions in the common stock, a common hedging strategy for those who believe that the Merton model is an effective hedging tool. Unfortunately the Merton implication that stock prices and debt prices move in the same direction is true only about half the time and traders suffered large losses from this kind of strategy in the GM and Ford cases. For this reason, KRIS users asked Kamakura to develop pair-wise default probability correlations that go far beyond the basic Merton/Copula approach. The KRIS Web site includes coverage of over 40,500 companies in 76 countries. Kamakura provides correlations both the Version 5 and Version 6 reduced form models at 10 maturities for 40,500+ firms. The total number of pair wise default correlations available is more than 650 billion.