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

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

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

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

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

7. Product1 – 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

8. Product1 – Company analysis 2. CreditEdge 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

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

10. Product2 – Portfolio analysis KMV Portfolio Manager TM For managing the credit risk and return of debt portfolios, large and small. For managing the credit risk and return of debt portfolios, large and small. 32-bit PC-based application highly optimized for speed 32-bit PC-based application highly optimized for speed Rapid and accurate calculation Rapid and accurate calculation Easy visualization of results Easy visualization of results

11. Product2 – 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?E.g. which assets should be sold? By how much? In what quantity?

12. Benefits Understand your portfolio risk 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 Avoid large losses Improve performance Improve performance –Make valuable adjustments

13. 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

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

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

16. BARRA

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

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

19. Products: Portfolio Risk Management The Barra Aegis System ™ 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.

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

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

22. Research and Development S&P/Barra U.S. Equity Indexes 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.

23. Research and Development Research Database 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.

24. Client Support Training Access product tutorials, begin an online, self-paced workshop, or register to attend an instructor-led workshop 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 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 Library Download handbooks, Getting Started guides, and other supporting documentation

25. Client Support Staff Directory Find phone numbers and e-mail addresses for the Barra staff supporting you. 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. 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.