Kamakura Yield Curve Smoothing
The quality of the data produced by a risk management system is the single most important measure of the system’s ability to help organizations improve shareholder value. That is why the very first significant technology implemented in Kamakura Risk Manager in 1990 was focused on yield curve smoothing. When Kamakura was founded in Japan in 1990, it was widely regarded as impossible to derive a smooth yield curve from traded prices on Japanese Government Bonds. Today, Kamakura is the world leader in applying the “maximum smoothness” of forward rate curves as the foundation for fitting credit-risk free curves. Here is a recent example from the U.S. Treasury market:
The research behind this innovation has been in the public domain since 1994, when this article was published:
Adams, Kenneth J. and Donald R. van Deventer. “Fitting Yield Curves and Forward Rate Curves with Maximum Smoothness.” Journal of Fixed Income, June 1994.
An expanded explanation of the maximum smoothness approach has been included in books by Kamakura’s Donald R. van Deventer, Kenji Imai, and Mark Mesler in 1996, 2006, and 2013.
In addition to the foundation of yield curve smoothing, Kamakura Risk Manager (KRM) has a powerful set of strengths that are applied consistently across the full spectrum of risk analysis:
- Best financial analytics in the risk management software industry, led by the financial research of Dr. Robert Jarrow
- Total integration of credit risk, market risk, asset and liability management, and performance measurement. The fundamental decision to build the world’s first integrated risk system was made in 1995, a quarter of a century before other vendors first attempted the task
- Scalable from desk top to the full enterprise in three-tiered client server mode, processing millions of transactions if the user desires using KRM’s distributed processing features
- Same graphic user interface across all Kamakura Risk Manager modules
- Rich ODBC-compliant data architecture shared across all risk calculations in Kamakura Risk Manager
- Very high-speed closed form solutions to maximize the quality of the risk management measures produced by the system
- Fully parallelized multi-threaded risk management application
- 100% installation success rate for the Kamakura Risk Manager system, which has never failed to produce high quality risk management results for Kamakura clients using client data on the client site