SOURCE: Kamakura Corporation

January 27, 2006 10:00 ET

Kamakura Adds Implied Credit Default Swap Quotes for 16,000 Corporates to KRIS Service: Default Correlations Expanded to 2.8 Billion Pairs of Companies

HONOLULU, HI -- (MARKET WIRE) -- January 27, 2006 -- Kamakura Corporation today announced a dramatic expansion of its Kamakura Risk Information Service default probability and correlation service. The KRIS service now includes implied credit default swap quotations for 16,000 corporations in 25 countries covered by the KRIS service. At the same time, Kamakura announced that it has more than doubled the number of company-by-company default correlations to more than 2.8 billion pairs of companies. This allows users to avoid the common but dramatically incorrect assumption that all pairs of companies in a portfolio or collateralized debt obligation tranche have the same default correlation.

"CDO analysts have been forced to make simple assumptions about default correlations and credit spreads because of a lack of data. Research by Kamakura and many others shows that credit spreads are not determined by default probabilities and recovery rates alone," commented Warren Sherman, Kamakura President and Chief Operating Officer. "The premium in credit spreads above and beyond the loss component is a function of market conditions, macro-economic factors and other company-specific information. Kamakura's implied credit default swap quotations reflect this reality as observed in a data base of more than 500,000 credit default swap bids, offereds and traded prices. This credit spread information, combined with our dramatically expanded default correlation capability, gives KRIS users and users of the Kamakura Risk Manager enterprise wide software package unparalleled accuracy in modeling total risk and correlated default in the manner recommended recently by Dr. John Frye of the Federal Reserve Bank of Chicago. The simple copula approach and the related assumption that all pairs of companies have the same default correlation lead to the kind of losses outlined in the Wall Street Journal on August 12, 2005. KRIS offers clients a much more accurate spread and correlation technology."

The implied credit default swap quotes are an add-on to the basic KRIS default probability and correlation service. Bid, offered and traded CDS prices are calculated using a hybrid model developed by Kamakura. This hybrid model incorporates the KRIS reduced form default term structure and its inputs, a Merton structural model default probability, ratings, and macro-economic factors. CDS quotations are available for 1, 2, 3, 4, 5, 7 and 10 year maturities.

The default correlations are consistent with a recent paper by Kamakura's Professor Robert Jarrow and Dr. Donald R. van Deventer (RISK Magazine, January 2005) and a subsequent article by Dr. John Frye in the July issue of RISK. For a copy of Dr. Frye's paper "Not a Stock Answer" please e-mail The Jarrow-van Deventer paper is available on the research page of the Kamakura web site

About Kamakura Corporation

Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura has been a provider of daily default probabilities and default correlations for listed companies since November, 2002. Kamakura launched its business mortality model for unlisted companies in January 2004. Kamakura is also the first company in the world to develop and install a fully integrated credit risk, market risk, asset and liability management, and transfer pricing software system. Kamakura has clients ranging in size from $3 billion in assets to $1.6 trillion in assets. Kamakura's risk management products are currently used in 17 countries, including the United States, Canada, Germany, Switzerland, the United Kingdom, Eastern Europe, the Middle East, Africa, Australia, Japan, China, Korea and many other countries in Asia.

Kamakura's research effort is led by Professor Robert Jarrow, who was named Financial Engineer of the Year in 1997 by the International Association of Financial Engineers. Professor Jarrow and Dr. van Deventer were both named to the 50-member RISK Hall of Fame in December 2002. Kamakura management has published twenty-one books and more than 100 publications on credit risk, market risk, and asset and liability management. Kamakura has world-wide distribution alliances with IPS-Sendero ( and Unisys (, making Kamakura products available in almost every major city around the globe.

For more information contact

Kamakura Corporation
2800 Woodlawn Drive, Suite 138, Honolulu, Hawaii 96822
Telephone: 1-808-539-3830
Facsimile: 1-808-539-3748
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