"A wide range of institutions from corporate accounts receivable departments to major international banks are looking for greater accuracy in modeling small business default," explained Warren Sherman, Kamakura President and Chief Operating Officer. "Traditional approaches to small business defaults have ignored the common macro-economic factors which cause peaks and valleys in the credit cycle. The KRIS Private Firm Model incorporates these insights from very large data bases around the world. As required by the Basel Capital Accords, an important part of the KRIS Private Firm Model is a report on model testing designed to far exceed the model performance requirements set by regulators." For more information on the KRIS Private Firm Model, see the KRIS Private Firm page on the products section of the Kamakura web site www.kamakuraco.com.
Kamakura's private firm modeling effort is based on the same "reduced form" and hazard rate modeling approach announced by the Federal Deposit Insurance Corporation of the United States on December 10, 2003. The model uses the insights of Professor Robert Jarrow, Kamakura's director of research and lead author of the FDIC Loss Distribution Model report. The KRIS Private Firm Model also has much in common with the Financial Institutions Monitoring System launched by the Board of Governors of the Federal Reserve System of the U.S. in the mid-1990s. The Kamakura approach is consistent with the advanced hazard rate modeling incorporated in Kamakura's integrated credit risk, market risk and ALM system Kamakura Risk Manager. Kamakura also works on a consulting basis with clients to do proprietary private firm modeling using the multi-period monte carlo simulation capabilities of the Kamakura Risk Manager system.
For additional information on private firm modeling and the macro-economic drivers of default, see Credit Risk Models and the Basel Accords by Kamakura's Donald R. van Deventer and Kenji Imai.