Kamakura Risk Manager, CECL & IFRS9

Absent proof of effectiveness, hedging institutions will be unable to align gains or losses with the declaration of interest income on the hedged assets. KRM can help your organization meet the standards of IAS39 by accomplishing a number of critical tasks:

  • Mark to market capability – past, present or future date or dates – on traditional financial assets and sophisticated derivatives transactions as part of a simulation of hedging effectiveness.
  • Cash flow generation on traditional financial assets, recognizing that much of the cash flow on financial assets is random due to features like floating rate interest payments, prepayment and default.
  • Cash flow generation on sophisticated derivatives, recognizing that much of the cash flow on the derivatives is subject to change based on market conditions on the payment dates.
  • Linear regression linking the market values and cash flow generated by both the traditional financial assets and the hedging derivatives – used to statistically prove the effectiveness of the hedge on either a mark value or cash flow basis.

Kamakura's risk management and accounting experts also work with clients to show:

  • How KRM data tables can link specific financial assets and other transactions being hedged to specific derivatives transactions being used to hedge; KRM's table structure provides for a unique hedge identifier for this purpose with proper security.
  • How to perform IAS-compliant linear regressions on KRM simulation output to establish hedging effectiveness.
  • How to create reports specific to that institution's requirements to report key data for appropriate accounting entries and hedge documentation.