The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Thomson Reuters Integrates Kamakura’s Default Probabilities into CDS Pricing and Analytics Suite

Share article

Thomson Reuters today announced that it has integrated Kamakura’s default probability service into its flagship financial desktop, Reuters 3000Xtra.

Kamakura’s default probabilities are now available via Reuters 3000 Xtra covering a universe of more than 1,500 public firms and close to 100 sovereign entities. Along with Thomson Reuters credit default swap (CDS) spread data, the two firms have created a Market Premium Ratio, which helps identify the portion of a traded CDS spread that indicates actual default risk and the portion of the spread that reflects other factors, such as liquidity. Thomson Reuters has also built related tools to facilitate relative value analysis on CDS spreads for purposes of arbitrage, hedging and risk valuation.

Kamakura, a provider of risk management information, processing and software, led the way in developing the world’s first fully integrated enterprise risk management system that analyses credit risk, market risk, asset and liability management, transfer pricing, and capital allocation. The company estimates default probabilities using what is termed as a ‘reduced-form’ approach. This varies from the commonly used ‘structural’ methodology in that a much broader array of explanatory variables are used as inputs to forecast the probability of default, thus reducing dependence on the more volatile equity markets.

Andrew Hausman, global head of fixed income at Thomson Reuters, said: “The recent market turmoil clearly demonstrated limitations with some widely-used approaches to firm valuation. Integrating Kamakura’s default probabilities into Reuters 3000Xtra means users can now base their decisions on powerful new intelligent information that will give them a real edge”.

Kamakura president and chief operating officer, Warren Sherman, added: ”The current credit crisis has shown very clearly that equity holders and debt holders can have different risk profiles as credit risk increases. A firm where the senior debt holders are rescued in a bailout can still leave subordinated debt holders, preferred stock holders and common stock holders with very large losses. Adding Kamakura default probabilities to Reuters 3000Xtra helps the full spectrum of liability holders distinguish between the risk of failure of a firm and the risk of loss for a given class of liabilities. This is critical to all investors in corporate common stock, preferred stock and traditional fixed income liabilities.”

This new joint Thomson Reuters-Kamakura tool offers the following features: the CDS spreads, default probabilities and Market Premium Ratios for public and sovereign entities with a default probability equal to or greater than 1%; the mean and median of Market Premium Ratios by sector and rating; and the ability to chart historical default probabilities, Market Premium Ratios and CDS spreads.

Related content

WEBINAR

Recorded Webinar: How to leverage the LIBOR transition to improve your data management game

The transition away from LIBOR (London Interbank Offered Rate) is well underway, but there remains considerable ambiguity around how the final stages will be executed – especially with regards to benchmark replacements in markets outside the UK. What are the options, where are the uncertainties and what stage have firms reached in their preparations? The...

BLOG

Live at Data Management Summit USA Virtual – Day Two Keynote and Q&As

A-Team Group’s Data Management Summit USA Virtual Day Two was based on the theme of best practices for data driven strategies in today’s new normal. The day started with an informative live keynote from Arvind Joshi, director of data management at Scotiabank, on how to establish data quality for analytics. This was followed by three...

EVENT

Data Management Summit USA Virtual

Data Management Summit USA Virtual will explore how sell side and buy side financial institutions are navigating the global crisis and adapting their data strategies to manage in today’s new normal environment.

GUIDE

Connecting to Today’s Fast Markets

At the same time, the growth of high frequency and event-driven trading techniques is spurring demand for direct feed services sourced from exchanges and other trading venues, including alternative trading systems and multilateral trading facilities. Handling these high-speed data feeds its presenting market data managers and their infrastructure teams with a challenge: how to manage...