Financial Research Company FRC Group 5 By Roger

Financial Research Company (FRC) Group 5 By Roger and Tessi

Outline What’s FRC? n KMV n – Background – Products provided n BARRA – Background – Products provided –R & D

What’s FRC? n Risk analyzing n Provide BEST method for improving portfolio performance n market-based, quantitative credit risk products for credit risk investors

Background Founded in 1989 n World-wide: New York, London, Tokyo… n Focus: credit risk n Treat credit risk as a portfolio management problem n All products are based on EDF (expected default frequency) n

Products 1. Company analysis – Credit Monitor® – Credit. Edge. TM 2. Portfolio analysis – KMV Portfolio Manager. TM

Product 1 – Company analysis 1. Credit Monitor®: Window-based software – Pro-forma analysis for both public and private firms – KMV EDF credit measures on 25, 000 public and 125, 000 private firms – Reports EDF credit measures updated on monthly basis

Product 1 – Company analysis 2. Credit. Edge. TM: Web-based – KMV EDF credit measures on >25, 000 publicly-traded firms globally – Reports EDF credit measures updated on daily basis – Tailor-made features to those operating in a real-time Internet environment, make buy and sell decisions quickly and often

Benefits n Know your risks – with a higher degree of accuracy n Gain insight – Compare company’s default risk with peers’ and its industry n Receive early warning – take action to avoid great losses

Product 2 – Portfolio analysis KMV Portfolio Manager. TM n For managing the credit risk and return of debt portfolios, large and small. n 32 -bit PC-based application highly optimized for speed n Rapid and accurate calculation n Easy visualization of results

Product 2 – Portfolio analysis Main functions: 1. Analyze on return for investors 2. Analyze whether the BEST combination of assets that provides the most diversification benefit 3. Identify the assets that degraded portfolio’s performance 4. Ways to improve portfolio’s performance • E. g. which assets should be sold? By how much? In what quantity?

Benefits n Understand your portfolio risk – Measure the risk and return characteristics of every exposure within your portfolio » E. g. loans, bonds, credit derivatives, mortgage… Avoid large losses n Improve performance n – Make valuable adjustments

Credit Risk The possibility that a bond issuer will default, i. e. fail to repay principle and interest in a timely manner. Also called: Default risk Back

EDF is the world's most accurate and powerful measure of a company's default risk n Probability that a firm will default within a given time frame n Components of EDF n – Market value of a firm – Level of debt obligations – Volatility of a firm’s value

Why EDF is important? n Default risks are dynamic n Efficient diversification of firms’ portfolio requires active portfolio management. Back

BARRA

Background n n n Providing services since 1975 risk management technology and decision support tools and products Barra offers: – high-tech tools – superior analytics – research – models and data – provide comprehensive risk management solutions

Products Barra Products Portfolio Risk Management 1. Barra Aegis System™ 2. Barra Cosmos System ™ Enterprise Risk Management Barra Total Risk ™

Products: Portfolio Risk Management n The Barra Aegis System ™ – Equity Portfolio Management – Managing an equity investment portfolio requires an understanding of risk – Analyze the components of portfolio risk and exposure to multiple factors that affect stock price movements.

Products: Enterprise Risk Management n The Barra Total. Risk System™ – Analyze, monitor, report, and manage your firm-wide risk with the Barra Total. Risk System. – Leveraging Barra's risk modeling expertise, client services and sophisticated technology

Research and Development Barra Products S&P/Barra U. S. Equity Indexes Research Database Canada Equity Style Indexes Newsletter Online

Research and Development n S&P/Barra U. S. Equity Indexes – View detailed information about the S&P/Barra family of indexes, including returns over various periods plus fundamental characteristics and sector weights, for any date back to index inception.

Research and Development n Research Database – forefront of applied financial research since 1974. – a variety of areas including risk management, returns forecasting, transactions analytics, and asset allocation. – investigate all major markets and traded instruments worldwide. – library of published research papers and archived newsletter articles authored by Barra employees available online.

Client Support n n n Training Access product tutorials, begin an online, self-paced workshop, or register to attend an instructor-led workshop Applications & Data Download applications and data, check the current update status, subscribe to update notifications and review the latest news Library Download handbooks, Getting Started guides, and other supporting documentation

Client Support n n Staff Directory Find phone numbers and e-mail addresses for the Barra staff supporting you. Equity Models View a detailed overview of Barra equity models, see recent factor performance highlights for any of our equity models and generate cumulative return charts for either risk index or industry factors.