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An Introduction to Derivative Securities, Financial Markets, and Risk ManagementAdvanced Financial Risk Management, 2nd ed.

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A Case Study of Yingli Solar Using KRIS Default Probabilities
May 19, 2016

The objective of this write-up is to showcase how the Kamakura Risk Information Services (“KRIS”) default probabilities subscription service assists users to manage exposure ingress and egress based on Kamakura Default Probabilities (“KDP”) movements.

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Donald R. van Deventer and Suresh Sankaran
April 25, 2016

The International Financial Reporting Standard (“IFRS”) 9 and the Financial Accounting Standard Board’s (“FASB”) Current Expected Credit Loss (“CECL”) model significantly raise the accuracy bar for valuation and credit risk analytics for all organizations who report under their aegis.

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Over the last 18 months, the dramatic fall in oil prices has triggered a dramatic widening of credit spreads and default probabilities for oil-related firms. To a slightly lesser degree, the same kind of macro factor sensitivity in the credit spreads and default probabilities in firms closely associated with other basic commodities. This note explains the “reduced reduced form” modeling approach used in Kamakura’s KRIS default probability service to link forward looking macro factors to simulated default probabilities. We refer readers interested in more detail to the recent note from Kamakura “Bank of America and CCAR 2016 Stress Testing: A Simple Model Validation Example” and the references at the end of this note.

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The author wishes to thank his colleague, Managing Director for Research Prof. Robert A. Jarrow, for twenty years of guidance and helpful conversations on this critical topic.

During the recent financial crisis, a large number of financial services firms failed and a still larger number of them would have failed without government assistance. The Kamakura Public Firm Default Probabilities Technical Guide (Jarrow et al, June, 2015) for the Kamakura Risk Information Services default probability service shows that the number of failed financial services firms in the recent credit crisis was very significant:

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