KRM Version 7.2 Can Calculate up to 999,999,999 Monte Carlo Scenarios
Kamakura Corporation announced Tuesday that version 7.2 of its enterprise risk management system Kamakura Risk Manager (“KRM”) has been shipped to clients in 33 countries. The new version of KRM, which has been under continuous enhancement for more than 20 years, has more than 250,000 lines of modern C++ code that analyze credit risk, market risk, interest rate risk, operational risk, liquidity risk, and capital adequacy on a fully integrated basis. Kamakura reported that KRM 7.2 can now generate as many as 999,999,999 Monte Carlo scenarios on 999,999 distinct risk factors driving risk. The large number of risk factors allows KRM users to model even the idiosyncratic risk of every counterparty on a correlated basis, something clearly necessary after the events of the credit crisis which began in 2007.
David Boldon, Washington DC representative for Kamakura Corporation, said Tuesday, “There have been massive enhancements in this new version of Kamakura Risk Manager, all driven by some exceptionally talented KRM users from Moscow to Beijing to Johannesburg to New York. We are very grateful that the transparency of KRM analytics and the open nature of the KRM data base has inspired our clients to ‘take ownership’ of KRM and to provide such valuable design assistance to us over the years.” Mr. Boldon added, “The synergies of our clients in insurance, banking, government and the corporate world have been essential in making such a large number of enhancements to the system in a very efficient manner.”
KRM version 7.2 operates on a wide variety of relational data base management systems including Netezza, DB2, Oracle, and MS SQL Server. The Kamakura Risk Manager Risk Portal (”KRM-rp”) is a web based reporting system that makes advanced KRM analytics available to risk managers who may not themselves be operators of the KRM system. KRM version 7.2 is fully compatible with the Kamakura Risk Information Services corporate default probability service, which covers 29,400 public firms in 33 countries. KRM version 7.2 also seamlessly links to the KRIS sovereign default probability service as well.
Kamakura Risk Manager Version 7.2 contains a wide range of new functionality:
Enhancements for simulation of risk:
• Kamakura Risk Manager version 7.2 now allows the user to define as many as 999,999 distinct risk factors driving enterprise risk.
• Kamakura Risk Manager input and output tables have been enhanced so that up to 999,999,999 Monte Carlo scenarios may be generated by the system.
• KRM version 7.2 now includes advanced memory management procedures to allow very high monte carlo scenario counts on large portfolios
• KRM version 7.2 now allows users to choose from 7 standard probability distributions for simulating random risk factors and it allows users to define their own empirical distribution functions
Enhancements for expanded transaction coverage:
• KRM version 7.2 now includes 18 different principal amortization methods for each side of a swap or swaptions transaction.
• KRM version 7.2 adds modeling of equity index forwards
• KRM version 7.2 also adds modeling of equity forwards
• KRM version 7.2 expands calculations for “compound interest” transactions
Enhancements for greater accuracy in valuation:
• KRM version 7.2 allows users to apply different credit spreads to value each leg of a swap when the credit risk of the two counterparties differs
• Version 7.2 now allows the user to specify “clean up calls” to retire any prepayable assets when the principal balance falls below a threshold of x% of the initial principal amount
• KRM version 7.2 adds 5 distinct formulas for prepayment penalties for transactions where prepayment penalties are relevant
• KRM version 7.2 contains enhanced risk reporting for each caplet associated with caps and floors transaction
• KRM version 7.2 allows volatility for caps and floors to be defined either for the full transaction or for individual caplets
• KRM version 7.2 incorporates calculations of betas for individual common stocks based on historical stock price and stock index data
• KRM version 7.2 adds enhanced modeling of cheapest to deliver bonds associated with bond futures contracts
• KRM version 7.2 adds improved modeling of foreign exchange swaps
Transfer-pricing related enhancements
• KRM version 7.2 allows users to define up to 5 different “add ons” to interest rates assigned to each asset or liability as part of the funds transfer pricing process
• KRM version 7.2 adds expanded funds transfer pricing for non-interest bearing assets and liabilities
Other enhancements:
• Kamakura Risk Manager version 7.2 gives clients the flexibility to specify which output tables should be populated in order to enhance processing time.
• KRM version 7.2 further adds to the richness of stress tests that can be defined by the user, both at time zero and at many user-selected forward points in time
• For maximum speed, KRM version 7.2 adds the option to select “credit risk only” value at risk as an additional VAR calculation option
• KRM version 7.2 incorporates advanced sampling techniques to more precisely measure the statistical significance of calculated value at risk figures
• KRM version 7.2 contains advanced options for specifying an organization’s dividend policy conditional on events that have occurred in the simulation
• KRM version 7.2 embeds additional functionality for Financial Accounting Standard 133 on hedge accounting
• KRM version 7.2 allows for expanded multi-currency rebalancing of assets and liabilities in a multi-period monte carlo simulation
