Financial Research Financial Research Company (FRC)Company (FRC)

Group 5Group 5

By Roger and TessiBy Roger and Tessi

OutlineOutline

What’s FRC?What’s FRC? KMVKMV

– BackgroundBackground– Products providedProducts provided

BARRABARRA– BackgroundBackground– Products providedProducts provided– R & DR & D

What’s FRC?What’s FRC?

Risk analyzing Risk analyzing

Provide BEST method for Provide BEST method for improving portfolio performanceimproving portfolio performance

market-based, quantitative credit market-based, quantitative credit risk products for credit risk risk products for credit risk investorsinvestors

BackgroundBackground

Founded in 1989Founded in 1989 World-wide: New York, London, World-wide: New York, London,

Tokyo…Tokyo… Focus: Focus: credit riskcredit risk Treat credit risk as a portfolio Treat credit risk as a portfolio

management problemmanagement problem All products are based on All products are based on EDFEDF

(expected default frequency)(expected default frequency)

ProductsProducts

1.1. Company analysisCompany analysis– Credit Monitor®Credit Monitor®– CreditEdgeCreditEdgeTMTM

2.2. Portfolio analysisPortfolio analysis– KMV Portfolio ManagerKMV Portfolio ManagerTMTM

Product1 – Company Product1 – Company analysisanalysis

1. 1. Credit Monitor®: Window-based Credit Monitor®: Window-based softwaresoftware

– Pro-forma analysis for both public Pro-forma analysis for both public and private firms and private firms

– KMV EDF credit measures on KMV EDF credit measures on 25,000 public and 125,000 private 25,000 public and 125,000 private firmsfirms

– Reports EDF credit measures Reports EDF credit measures updated on monthly basisupdated on monthly basis

Product1 – Company Product1 – Company analysisanalysis

2. 2. CreditEdgeCreditEdgeTMTM: Web-based: Web-based– KMV EDF credit measures on KMV EDF credit measures on

>25,000 publicly-traded firms >25,000 publicly-traded firms globallyglobally

– Reports EDF credit measures Reports EDF credit measures updated on daily basisupdated on daily basis

– Tailor-made features to those Tailor-made features to those operating in a real-time Internet operating in a real-time Internet environment, make buy and sell environment, make buy and sell decisions quickly and oftendecisions quickly and often

BenefitsBenefits

Know your risksKnow your risks– with a higher degree of accuracy with a higher degree of accuracy

Gain insightGain insight– Compare company’s default risk with Compare company’s default risk with

peers’ and its industrypeers’ and its industry Receive early warningReceive early warning

– take action to avoid great lossestake action to avoid great losses

Product2 – Portfolio Product2 – Portfolio analysisanalysis

KMV Portfolio ManagerKMV Portfolio ManagerTMTM

For managing the credit risk and For managing the credit risk and return of debt portfolios, large return of debt portfolios, large and small. and small.

32-bit PC-based application highly 32-bit PC-based application highly optimized for speedoptimized for speed

Rapid and accurate calculationRapid and accurate calculation Easy visualization of resultsEasy visualization of results

Product2 – Portfolio Product2 – Portfolio analysisanalysis

Main functions:Main functions:1.1. Analyze on return for investorsAnalyze on return for investors2.2. Analyze whether the BEST Analyze whether the BEST

combination of assets that provides combination of assets that provides the most diversification benefitthe most diversification benefit

3.3. Identify the assets that degraded Identify the assets that degraded portfolio’s performance portfolio’s performance

4.4. Ways to improve portfolio’s Ways to improve portfolio’s performanceperformance

• E.g. which assets should be sold? By how E.g. which assets should be sold? By how much? In what quantity?much? In what quantity?

BenefitsBenefits

Understand your portfolio riskUnderstand your portfolio risk– Measure the risk and return Measure the risk and return

characteristics of every exposure characteristics of every exposure within your portfoliowithin your portfolio» E.g. loans, bonds, credit derivatives, E.g. loans, bonds, credit derivatives,

mortgage…mortgage…

Avoid large lossesAvoid large losses Improve performanceImprove performance

– Make valuable adjustmentsMake valuable adjustments

Credit RiskCredit Risk

The possibility that a bond issuer The possibility that a bond issuer will will defaultdefault, i.e. fail to repay , i.e. fail to repay principle and interest in a timelyprinciple and interest in a timely manner. manner.

Also called:Also called: Default riskDefault riskBack

EDFEDF

EDF is the world's most accurate EDF is the world's most accurate and powerful measure of a and powerful measure of a company's default riskcompany's default risk

Probability that a firm will default Probability that a firm will default within a given time framewithin a given time frame

Components of EDF Components of EDF – Market value of a firmMarket value of a firm– Level of debt obligationsLevel of debt obligations– Volatility of a firm’s valueVolatility of a firm’s value

Why EDF is important?Why EDF is important?

Default risks are dynamic Default risks are dynamic

Efficient diversification of firms’ Efficient diversification of firms’ portfolio requires active portfolio portfolio requires active portfolio management.management.

Back

BARRABARRA

BackgroundBackground

Providing services since 1975Providing services since 1975 risk management technology and risk management technology and

decision support tools and products decision support tools and products Barra offers:Barra offers:

– high-tech toolshigh-tech tools– superior analyticssuperior analytics– researchresearch– models and data models and data – provide comprehensive risk management provide comprehensive risk management

solutionssolutions

ProductsProducts

Barra Products

Portfolio Risk Management Enterprise Risk Management

1. Barra Aegis System™2. Barra Cosmos System ™

Barra Total Risk ™

Products: Portfolio Risk Products: Portfolio Risk ManagementManagement

The Barra Aegis System ™The Barra Aegis System ™– Equity Portfolio ManagementEquity Portfolio Management– Managing an equity investment portfolio Managing an equity investment portfolio

requires an understanding of risk requires an understanding of risk – Analyze the components of portfolio risk Analyze the components of portfolio risk

and exposure to multiple factors that affect and exposure to multiple factors that affect stock price movements.stock price movements.

Products: Enterprise Risk Products: Enterprise Risk ManagementManagement

The Barra TotalRisk System™The Barra TotalRisk System™– Analyze, monitor, report, and manage Analyze, monitor, report, and manage

your firm-wide risk with the Barra your firm-wide risk with the Barra TotalRisk System. TotalRisk System.

– Leveraging Barra's risk modeling Leveraging Barra's risk modeling expertise, client services and expertise, client services and sophisticated technologysophisticated technology

Research and Research and DevelopmentDevelopment

Barra Products

S&P/Barra U.S. Equity Indexes Research Database

Canada Equity Style Indexes Newsletter Online

Research and Research and DevelopmentDevelopment

S&P/Barra U.S. Equity IndexesS&P/Barra U.S. Equity Indexes– View detailed information about the View detailed information about the

S&P/Barra family of indexes, including S&P/Barra family of indexes, including returns over various periods plus returns over various periods plus fundamental characteristics and fundamental characteristics and sector weights, for any date back to sector weights, for any date back to index inception. index inception.

Research and Research and DevelopmentDevelopment

Research DatabaseResearch Database– forefront of applied financial research since forefront of applied financial research since

1974. 1974. – a variety of areas including risk management, a variety of areas including risk management,

returns forecasting, transactions analytics, and returns forecasting, transactions analytics, and asset allocation. asset allocation.

– investigate all major markets and traded investigate all major markets and traded instruments worldwide. instruments worldwide.

– library of published research papers and library of published research papers and archived newsletter articles authored by Barra archived newsletter articles authored by Barra employees available online.employees available online.

Client SupportClient Support

TrainingTrainingAccess product tutorials, begin an online, Access product tutorials, begin an online, self-paced workshop, or register to attend self-paced workshop, or register to attend an instructor-led workshopan instructor-led workshop

Applications & DataApplications & DataDownload applications and data, check the Download applications and data, check the current update status, subscribe to update current update status, subscribe to update notifications and review the latest newsnotifications and review the latest news

LibraryLibraryDownload handbooks, Getting Started Download handbooks, Getting Started guides, and other supporting guides, and other supporting documentationdocumentation

Client SupportClient Support

Staff DirectoryStaff DirectoryFind phone numbers and e-mail Find phone numbers and e-mail addresses for the Barra staff supporting addresses for the Barra staff supporting you. you.

Equity ModelsEquity ModelsView a detailed overview of Barra equity View a detailed overview of Barra equity models, see recent factor performance models, see recent factor performance highlights for any of our equity models highlights for any of our equity models and generate cumulative return charts and generate cumulative return charts for either riskfor either risk index or industry factors.index or industry factors.