SOURCE: Kamakura Corporation

Kamakura Corporation

December 09, 2009 10:00 ET

New Version 7.1 of Kamakura Risk Manager Released to Clients in 32 Countries

Kamakura Announces Dramatic Enhancements to Integrated Risk System

NEW YORK, NY--(Marketwire - December 9, 2009) - Kamakura Corporation announced Wednesday that Kamakura Risk Manager Version 7.1 has been shipped to clients in 32 countries around the world. Kamakura reported that very significant advances in speed, accuracy and product coverage have resulted from insightful client suggestions and risk management insights of Kamakura Managing Director for research Robert A. Jarrow, who recently advised the U.S. Department of the Treasury on the valuation of warrants issued under the government's Troubled Assets Relief Program. The new version of KRM has already been reported to run in 30-90% less time, depending on the prior KRM version, on client sites due to breakthroughs in both financial theory and computer science. Perhaps the biggest breakthrough has been to more fully exploit Professor Jarrow's insights on reduced form event modeling. Version 7.1 of KRM exploits the fact that, conditional on the values of the macro factors driving default, the actual default/no default of any two counterparties is conditionally independent. This allows distinct and powerful user control with separate "dials" for macro factor simulation and default simulation on a fully integrated basis. The new version also exploits computer science synergies that allow interest rate index modeling technology to be used to model default more accurately, that allow default technology to be used to model prepayments on a integrated basis, and which default probability technology to be applied to integrated operational risk simulation for the first time.

Kamakura's President Warren A. Sherman said Wednesday, "Version 7.1 of KRM is a huge step forward in integrated risk technology. In combination with our clients' advice, the Kamakura research and development team in Honolulu has brought the best of breed simulation technology from astrophysics and physics to apply state of the art risk management and finance to portfolios of unprecedented size. New Version 7.1 offers unparalleled integration between formerly separate disciplines: market risk, interest rate risk ("asset and liability management"), credit portfolio management, economic capital, funds transfer pricing, Basel I and II capital calculations, and operational risk. Our clients have been very impressed with the increased understanding of risk and return and the huge cost reduction they can achieve by replacing multiple silo-oriented legacy risk systems with the integrated risk capabilities of Kamakura Risk Manager. Moreover, clients have been quick to point out to us that KRM users have navigated the 2007-2009 credit crisis with great skill, while legacy risk technology has been called into question."

Among the new features in Kamakura Risk Manager Version 7.1 are the following capabilities:

-- Enhanced capabilities in credit risk management
    -- Creation of consistent but separate simulations for macro-economic
       factors ("outer loop simulations") and probabilities derived from
       them ("inner loop"), like the simulation of default/no default
       using a date and borrower specific default probability formula with
       simulated macro factors as inputs
    -- Increased mathematical flexibility in modeling default probability
       formulas and interest rate formulas.  The logistic function (say for
       the default rate) can be an input for modeling floating interest
       rates, as can the natural logarithm and exponential function.
       Logistic functions can also take other logistic variables as inputs,
       included lagged logistic functions.  These expanded indices can be
       used across the full span of credit risk, market risk, interest rate
       risk and funds transfer pricing calculations in KRM
    -- Increased flexibility in forecasting forward using lagged values for
       interest rates and macro-economic factors like home prices as inputs
       to default, prepayment, spread and interest rate relationships
    -- Enhanced modeling of loan guarantees for any fixed or floating rate
    -- Ability to model default using variables which change randomly in an
       auto-regressive moving average fashion
    -- Enhanced joint modeling of prepayment and default using multinomial
-- Enhanced capabilities in interest rate risk management and funds
   transfer pricing
    -- Updated calculations for transaction level duration and average life
    -- Implementation of the option to allow negative interest rates, which
       have been common in markets like Hong Kong
    -- Ability to model dividends on common stock as a function of interest
       rates and other macro-economic factors
    -- Enhanced ability to use exchange traded futures contracts as inputs
       to interest rate and default probability indices
    -- Enhanced flexibility in modeling of interest and principal by exact
       day count
    -- Enhanced modeling of graduated payment structures such as the
       "option ARMS" structured in the United States
    -- Enhanced flexibility in modeling index-linked principal
       structures with multiple principal payment dates
    -- Enhanced modeling of multiple disbursement structures
    -- Enhanced modeling of floating rate securities with random principal
       amortization features
    -- Reporting of standard deviation of option-adjusted spread
-- Enhanced capabilities in valuation and market risk
    -- Enhanced formula-driven credit spread modeling
    -- Enhanced modeling of multiple risk insurance and reinsurance
    -- Enhanced modeling of property and casualty and political risk
       insurance and re-insurance policies
    -- Enhanced modeling for structured or "packaged" deals with more than
       one underlying reference transaction
    -- Ability to model amortizing caps and floors
    -- Enhanced modeling of corridor and knock-in/knock-out caps and floors
    -- Enhanced accounting options for non-options-related equity
    -- Addition of barrier options on equity indices
    -- Addition of binary equity index-linked bonds and swaps
    -- Addition of callable equity index-linked bonds and swaps
    -- Enhanced ability to model delays in settlement  of forward foreign
       exchange contracts
    -- Modeling of no touch, double no touch, one touch, double one touch,
       and rebate foreign exchange rate options
    -- Enhanced modeling of stop-loss strategies on structured or
       "packaged" deals
    -- Substantially enhanced granularity in modeling controls for
       structured products
    -- Enhanced access to Markit Partners' structured products libraries
    -- Updated interactions with libraries of Andrew Davidson & Co. and
    -- Enhanced modeling for both funded and unfunded synthetic CDOs
-- General systems enhancements
    -- Increased flexibility in defining and analyzing the impact of fees
       on cash flow, financial accruals and valuations.  Financial accrual
       calculations allow the user to select from 4 different methods for
       accounting for fees
    -- Refined calculations for instruments with sinking funds
    -- 15 new user-defined fields added to the KRM portfolio table
    -- Enhanced design for the product ID screen by which users specify
       modeling assumptions for each "product  ID" or class of transactions
    -- Enhanced ability to create a forecast using constant risk factor
       values with high ease of use
    -- Enhanced creation of calendar date-based modeling periods
    -- Expanded capabilities for modeling "new business," transactions not
       yet originated by the firm, including the ability to specify the
       credit rating of the new business
    -- New web-based reporting using the third generation KRM-rp Risk
       Portal reporting package

About Kamakura Corporation

Founded in 1990, Honolulu-based 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 announced the KRIS Sovereign Default Probability Service on May 19, 2008. Kamakura launched its web-based credit portfolio management and CDO pricing service KRIS-cpm in April 2007. Kamakura is also the first company in the world to develop and install a fully integrated enterprise risk management system that analyzes credit risk, market risk, asset and liability management, transfer pricing, and capital allocation. The Kamakura Risk Manager system, now in version 7.1, was first offered commercially in 1993 and has been continually enhanced since then. Kamakura has served more than 200 clients ranging in size from $3 billion in assets to $1.6 trillion in assets. Kamakura's risk management products are currently used in 32 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, the Ukraine, Eastern Europe, the Middle East, Africa, Australia, Japan, China, Korea and many other countries in Asia.

Kamakura has world-wide distribution alliances with Fiserv (, Unisys (, and Zylog Systems ( making Kamakura products available in almost every major city around the globe.

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