Don is the founder & chairman of Honolulu-based risk management firm Kamakura Corporation. “Se freni, non vinci," Mario Cipollini (If you brake, you won’t win).
TODAY’S AVERAGE KDP PER RATING GRADE “Why is the correlation between legacy ratings & modern KRIS default probabilities so low?” Ratings are (1) 160 years old (2) have no term structure (3) change every (median) 1,107 days (4) have “bigger is better” & “issuer pays” bias #credit
Traded bond spreads (blue) versus 1 & 10-year KRIS default probabilities (orange & green) for Leidos Holdings $LDOS bonds due 2020 via risk ratings #credit #creditrisk #creditratings #bonds #corporatebonds #riskmanagement #interestrates
The Kamakura Troubled Company Index®, the only daily measure of the international economy, shows that worldwide corporate credit conditions were up 3 points at the 43rd percentile of the period 1990 to 2019, with 100 indicating best. #credit #creditriskr #riskmanagementisk
The Kamakura Expected Cumulative Default Rate, the only daily index of the credit quality of rated firms worldwide, shows the 1-year rate down 0.08% at 1.18% and the 10-year up 0.05% at 14.85%. #riskmanagement #credit #creditriskrisk
There were 7 advances and 13 declines in price among the most heavily traded bonds in the US corporate market in the prior trading day. Via risk #credit #creditrisk #bonds #corporatebonds #CVA #riskmanagement
#Credit FAQ “How wrong will I be if I use historical 1-year ratings-based default rates instead of modern default probabilities?” Very wrong. Because ratings have no term structure, 1 maturity will be ok but others will be way off” Example: 10 years 1 million scenarios
Daily validation for legacy #creditratings , invented in 1860: Which is more accurate for rich/cheap fixed income analysis, KRIS default probabilities or ratings? KRIS wins 83% of the bond by bond day by day comparisons #bonds #credit #creditriskrisk
John Gotti went to prison after fixing construction costs in New York. Lloyd Blankfein went to cocktail parties after fixing swaps.
#Muniland Most active week in the muni CDS market in recent memory, including first ever trade in State of #Maryland
Just an OK surf day in #Chigasaki but with Mt. Fuji in the background, who cares?
NEW VIDEO Simulating First Year Defaults in a Bond and Equity Portfolio of 38,567 Firms: $AGG $BND $BOND $SPY
By country and maturity, how much of the variation in modern KRIS big data default probabilities is explained by an ordinal variable based on #creditratings (1=AAA, 2=AA+, etc.)? Example: ARGENTINA, 5 years, MINUS 2% #credit #creditriskr #Argentinaisk
Legacy rating agency has just added "market leverage" to its credit model. @KamakuraCo did that in 2003.