Donald Robert Van Deventer

Donald Robert Van Deventer
SAS Institute | SAS

Ph.D. Business Economics, Harvard University

About

174
Publications
86,164
Reads
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691
Citations
Citations since 2016
58 Research Items
290 Citations
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2016201720182019202020212022020406080
Introduction
Don van Deventer is the founder, Chairman and CEO of risk information and software firm Kamakura Corporation. He works closely with the Kamakura Risk Manager development team and Kamakura Risk Information Services team to ensure that Kamakura maintains its 30 years of leadership in risk management analytics. In that role, Dr. van Deventer works very closely with Prof. Robert Jarrow, Kamakura's Managing Director for Research since 1995.
Additional affiliations
March 1990 - April 2016
Kamakura Corporation
Position
  • Chairman, Chief Executive Officer, and Founder
Education
September 1973 - July 1977
Harvard University
Field of study
  • Business Economics

Publications

Publications (174)
Preprint
Full-text available
Please note: SAS Institute Inc. term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the U.S. Treasury yield curve from January 2, 1962 through September 30, 2022, updating prior documentation through March 31...
Preprint
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We present an annotated version of slides used in a presentation to Risk Americas on the reduced form approach to SOFR swap and swaptions valuation. The same methodology can be used for any floating rate swap index from Libor to Treasury bills and to any new short-term index that may emerge in the years ahead. The contents of the slides were co-aut...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the U.S. Treasury yield curve from January 2, 1962 through March 31, 2022, updating prior documentation through December...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the French Government Securities yield curve from January 2, 2015 through January 31, 2022. The French data set is very un...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the Canada Government Securities yield curve from January 2, 2001 through February 28, 2022. Consistent with prior work on...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the Thailand Government Securities yield curve from September 15, 1999 through October 31, 2021. Consistent with prior wor...
Data
Appendices A through E provide a graphical summary of realized term premiums in the U.S. Treasury market from 1982 through December 31, 2021 for every possible trade data. Two related spreadsheets are also attached to this project on www.researchgate.net.
Data
Realized U.S. Treasury "money fund" total returns using 6-month Treasury bills as reported in "How Well Do U.S. Treasury Yields Forecast Inflation? An Update Through December 31, 2021"
Data
This spreadsheet summarizes realized and pending excess returns in the US Treasury market for every trade date, 1982 through December 31, 2021 as explained in "How Well Do U.S. Treasury Yields Forecast Inflation? An Update Through December 31, 2021"
Preprint
Full-text available
The size of the term premium embedded in the current U.S. Treasury yield curve has been a major focus of research by monetary policy makers and market participants. Researchers have employed both closed form solutions and no-arbitrage simulations using multi-factor models with stochastic volatility. This paper, prepared with individual investors in...
Preprint
Full-text available
This paper shows that, for a sample of corporate bond prices, credit spreads and therefore discount rates of promised coupons and principal differ substantially. To better fit this stylized fact we propose and estimate a tractable, arbitrage-free valuation model for corporate bonds that includes a more realistic recovery rate process. Existing spre...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the Japanese Government Bond yield curve from September 24, 1974 through November 30, 2021. The process of model implementation confirms a number of important insights for interest rate modeling generally. First, model validation of historical yields is important beca...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the Australian Government Securities yield curve from January 2, 1996 through October 31, 2021. The process of model implementation confirms a number of important insights for interest rate modeling generally. First, model validation of historical yields is important...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the Government of Spain yield curve from July 1, 1987 through October 31, 2021. The process of model implementation confir...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in government yield curves from 13 countries from January 2, 1962 through September 30, 2021. The countries included are Aust...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the German government (“Bund”) yield curve from August 7, 1997 through September 30, 2021. The process of model implementation reveals a number of important insights for interest rate modeling generally. First, model validation of historical yields is important becaus...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the Government of Russia yield curve from January 4, 2003 through August 31, 2021. The process of model implementation rev...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the Government of Canada yield curve from January 2, 2001 through August 31, 2021. The process of model implementation reveals a number of important insights for interest rate modeling generally. First, model validation of historical yields is important because those...
Preprint
Full-text available
Please note: Kamakura Corporation term structure models are updated monthly. For the most recent set of coefficients, contact info@kamakuraco.com This paper analyzes the number and the nature of factors driving the movements in the U.S. Treasury yield curve from January 2, 1962 through June 30, 2021. The process of model implementation reveals a nu...
Conference Paper
Full-text available
We present an annotated version of slides used in a presentation to Risk Americas on the bond/credit default swap basis. Prof. Jarrow begins by explaining the assumptions and analytical approach behind the reduced form bond model of Hilscher, Jarrow and van Deventer [2020]. The derivation makes use of "building block securities." By that we mean si...
Preprint
Full-text available
We use daily observations of the U.S. Treasury yield curve from 1962 to 2020 to construct two state of the art Heath, Jarrow and Morton term structure models. Both models incorporate stochastic interest rate-driven volatilities, generate both empirical and risk neutral interest rates, allow negative rates, and recognize that interest rate volatilit...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the U.S. Treasury yield curve from January 2, 1962 through December 31, 2020. The process of model implementation reveals a number of important insights for interest rate modeling generally. First, model validation of historical yields is important because those yield...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the U.S. Treasury yield curve from January 2, 1962 through December 31, 2019. The process of model implementation reveals a number of important insights for interest rate modeling generally. First, model validation of historical yields is important because those yield...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the Japanese Government Bond yield curve from September 24, 1974 through December 28, 2018. The process of model implementation reveals a number of important insights for interest rate modeling generally. First, model validation of observed yields is important because...
Preprint
Full-text available
This paper analyzes the number and the nature of factors driving the movements in the U.S. Treasury yield curve from January 2, 1962 through December 31, 2018. The process of model implementation reveals a number of important insights for interest rate modeling generally. First, model validation of historical yields is important because those yield...
Preprint
Full-text available
This paper derives a tractable, arbitrage-free valuation model for corporate coupon bonds that includes a more realistic recovery rate process than that used in the existing literature. The existing literature uses a recovery rate process that is misspecified because it includes the recovery rates for coupons to be paid after the default date. Pric...
Preprint
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This is the third of three attempts to justify the use of 158-year-old credit ratings in the credit portfolio management process. In part 1 of this series, we showed that the use of historical ratings-based default rates severely overstates credit risk among all rated firms worldwide for the first 4 years. For years 5 through 10, the use of histori...
Preprint
Full-text available
It is common practice among credit analysts to use historical default rates published by rating agencies as a proxy for a true forward-looking firm-by-firm set of modern corporate default probabilities. Part 1 of this series showed that such approximations of true portfolio losses are grossly inaccurate. In this installment of our three-part series...
Preprint
Full-text available
It is common practice among credit analysts to use historical default rates published by rating agencies as a proxy for a true forward-looking firm-by-firm set of modern corporate default probabilities. This analysis shows that such approximations of true portfolio losses are grossly inaccurate. In the current environment, historical losses reporte...
Preprint
Full-text available
Existing research often implies negative term premiums in the U.S. Treasury market. This research begs an answer to the question "What are the historical realized and in progress term premiums in the Treasury market?" We answer that question for every origination date starting on January 4, 1982 and provide supporting spreadsheets.
Conference Paper
Full-text available
This paper uses the reduced form credit model and Heath, Jarrow and Morton frameworks from Robert Jarrow to value all of the senior non-call bonds of a credit risky issuer with two inputs & two market-implied parameters. The inputs are the term structure of risk-free zero coupon bond prices and the term structure of daily cumulative default probabi...
Technical Report
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This technical report calls the reader's attention to errata in a prior paper and to the corrections subsequently published. We provide video examples of maximum smoothness forward rate curves for 8 major government bond markets.
Article
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We use quarterly data from September 1, 1998 from the Monetary Authority of Singapore to test weak and strong hypotheses about the suitability of one factor term structure models for risk management. We conclude that 11 factors are necessary for a best practice Heath, Jarrow and Morton ("HJM") model of Singapore Government Securities yields and tha...
Article
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In January 2005, Prof. Robert Jarrow and I published a paper in RISK Magazine entitled " Estimating Default Correlations Using a Reduced Form Model. " Since that time, we have seen the management of portfolios of risky credits evolve in one of two directions. The best practice approach is to fully exploit the advantages of reduced form models by us...
Article
Full-text available
We use quarterly data from the Banco de Espana to create a time series of zero coupon bond yields for the Spanish Government Bond market from July 1, 1987 to June 30, 2015. We test a strong and weak hypothesis about the suitability of one factor term structure models for interest rate risk management in Spain. We conclude that 11 factors are statis...
Article
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We use a fine Swedish Government Bond yield history from the Sveriges Riksbank to fit an 11 factor Heath Jarrow and Morton term structure model for the Swedish Government Bond market. We find that both strong and weak hypotheses that a 1 factor model is "accurate enough" are strongly rejected. Because the Swedish data set includes extensive periods...
Article
Full-text available
The German Bund yield curve and its history are critical components for the derivation and validation of interest rate risk models for asset and liability management, market risk, economic capital, interest rate risk in the banking book, stress-testing and the internal capital adequacy assessment process. There are some interesting contrasts betwee...
Article
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The Australia Commonwealth Government Securities yield curve and its history are a prime topic for risk management analysis, given the stock market chaos around the world and the relatively calm and peaceful evolution of interest rates in Australia. Is the yield curve for Commonwealth Government Securities unique and different compared to other mar...
Article
Full-text available
The United Kingdom Government Bond yield curve and its history is a critical data set for the derivation and validation of interest rate risk models for asset and liability management, market risk, economic capital, interest rate risk in the banking book, stress-testing and the internal capital adequacy assessment process. The importance of the Uni...
Article
Full-text available
Japan has longer experience with very low interest rates than any of the major economies. We fit a 16 factor Heath, Jarrow and Morton model with rate-dependent interest rate volatility to quarterly data on Japanese government bond yields from 1974 through June 30, 2015. We contrast the 16 factor model with the accuracy of commonly used one factor m...
Article
Full-text available
In this paper, we compare the performance of a one factor term structure model with a best practice Heath Jarrow Morton model of Government of Canada yields. The HJM implementation uses 12 factors and rate-dependent volatility on a quarterly data set from July 1, 1997 through March 31, 2015. We conclude that both strong and weak hypotheses about th...
Article
Full-text available
Trading volume in the bond and credit default swap markets, particularly the sovereign credit default swap market, is one of the key drivers of profit for major dealers like Bank of America (BAC), Barclays Bank PLC, BNP Paribas (BNPZY), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC Holdings (HSBC), JPMorgan Chase (...
Article
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In this note we analyze trading in municipal and sub-sovereign credit default swaps using weekly data from the Depository Trust & Clearing Corporation. The data is available from the week ended July 16, 2010 through June 26, 2015. We find that only 12 municipal and sub-sovereign reference names have had at least 1 credit default swap traded over th...
Article
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We analyze trading volume for all non-bank corporate reference names for which trading volume was non-zero from the 259 weeks ended July 16, 2010 through June 26, 2015. Of the 1,259 reference names on which there was at least 1 trade, 1,041 were non-bank corporations. We conclude that for the vast majority of names non-dealer trading volume is mini...
Article
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Using 259 weeks of data disclosed by the Depository Trust and Clearing Corporation, we analyze 1,256 reference names with traded CDS. Only 114 of these reference names are non-U.S. banks. None of the 114 international banks has a daily average non-dealer trading volume of more than 7 trades per day. We conclude that the credit default swap market d...
Article
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A number of authors have suggested that credit default swap pricing be used as a basis for setting deposit insurance premiums for banking firms or setting compensation for bank chief executive officers. We reexamine these proposals in this note, the seventh of a semiannual series of reports on credit default swap trading in U.S. bank and bank holdi...
Article
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In this report, we update the semi-annual Kamakura Corporation analysis of trading volume in single name credit default swaps as reported by the Depository Trust & Clearing Corporation (" DTCC "). This report takes on special significance because of the increased activity in the courts regarding potential collusion in the credit default swap market...
Article
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Regulatory risk regulations launched in the wake of the credit crisis emphasize the impact of a wide range of macroeconomic factors on the risk of financial institutions. Over the past few years, it has become standard for regulators to use more realistic models of interest rate movements than common practice among large financial institutions. The...
Article
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One of the most frequently asked questions when people review predictive models of default is this: “Aren’t those explanatory variables correlated, and doesn’t this create problems with multicollinearity?” Since almost every default model has correlated explanatory variables, this is a question that comes up often. This post collects quotes on this...
Article
Full-text available
This paper shows how to simulate a term structure evolution that is both economically and statistically valid. A simulation is economically valid if the assumed evolution is arbitrage free. A quick way to check a simulation for its economic validity is provided. A simulation is statistically valid if the simulated evolution is consistent with histo...
Conference Paper
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The Federal Reserve released the results of the Comprehensive Capital Analysis and Review stress tests on the afternoon of Thursday, March 5. In this note, we follow the examples of two very well-known papers. Andrew Haldane of the Bank of England, writing with Vasileios Madouros, asked whether the Basel capital ratios could outperform a benchmark...
Article
Full-text available
A number of authors have suggested that credit default swap pricing be used as a basis for setting deposit insurance premiums for banking firms. We re-examine this proposal in this note, the fifth of a semiannual series of reports on credit default swap trading in U.S. bank and bank holding company reference names. This note updates the prior Kamak...
Article
Full-text available
We previously analyzed the trading volume of credit default swaps on international bank reference names on July 14, 2014 for the 207 weeks ending June 27, 2014. This note updates that analysis for the 233 weeks ended December 26, 2014. Of the 1,239 reference names on which credit default swaps were traded during this period, 113 were “international...
Article
Full-text available
This analysis is the third in a series analyzing the trading volume in single name credit default swaps for the 233 weeks ended December 26, 2014. In this note, we focus on trading in 1,041 non-bank corporate reference names. The highest non-dealer trading volumes are found on “story credits” like J. C. Penney (JCP), Caesars Entertainment Operating...
Article
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The purpose of this note is to bring clarity and precision to discussions of municipal credit default swaps by providing facts from the Depository Trust & Clearing Corporation trade warehouse. It is simply not the case that Puerto Rico credit default swaps have “barely traded.” The DTCC data makes clear that Puerto Rico credit default swaps have ne...
Article
Full-text available
Trading volume in the bond and credit default swap markets, particularly the sovereign credit default swap market, is one of the key drivers of profit for major dealers like Bank of America (BAC), Barclays Bank PLC, BNP Paribas (BNPZY), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC Holdings (HSBC), JPMorgan Chase (...
Article
Full-text available
In this report, we update the semi-annual Kamakura Corporation analysis of trading volume in single name credit default swaps as reported by the Depository Trust & Clearing Corporation (" DTCC "). In today's analysis, we look at 233 weeks of single name credit default swap trading volume data from the week ended July 16, 2010 through December 26, 2...
Chapter
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This chapter starts with the long-running battle between mark to market and net income-simulation based risk management. Key quotes from the credit crisis summarize the reasons for failure of the “too big to fail” firms. We state the objectives of risk management. We explain important milestones in the advancement of the risk management discipline.
Chapter
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Chapter 25 employs the 3 factor HJM bushy tree of Chapter 9 to value the fixed side of an interest rate swap, the floating side of an interest rate swap, and the combined swap position. We discuss valuation of swaptions using the same approach and the implications of counterparty default for valuation.
Chapter
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The 3 factor HJM bushy tree from Chapter 9 is used in this chapter to demonstrate the risk neutral valuation of almost any type of interest rate derivative. We discuss arrears swaps, digital interest rate options, digital range floaters and other exotic structures.
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This chapter discusses the demise of legacy “silo” risk systems and outlines the process by which leading financial institutions replace them with a modern integrated enterprise risk system. It discusses the request for proposal process, the pros and cons of a pilot installation, and how to be a “best practice” user of a sophisticated enterprise ri...
Chapter
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This chapter focuses on the valuation of an amortizing loan with an embedded American call option. We first use the HJM 3 factor bushy tree from Chapter 9 to value the loan on the assumption that it will be called in a rational way. In the second case, we assume that the call option is exercised “irrationally” and we introduce the concept of transa...
Chapter
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This chapter uses the credit crisis experience of Countrywide Financial and Royal Bank of Scotland in a discussion about the valuation of revolving lines of credit. Balances on revolvers are driven by both normal seasonality in cash flow needs and credit-event driven needs. A complete approach to valuation incorporates both elements.
Chapter
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This chapter shows why not even a three factor interest rate model is sufficient to accurately model interest rate movements. It discusses the Basel market risk requirement that banks use at least six risk factors to drive interest rates. We discuss Monte Carlo simulation in the Heath Jarrow and Morton framework. We outline common pitfalls in the p...
Chapter
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This chapter contrasts the “plus alpha” performance versus an index with transfer pricing and related financial accounting measures of performance used in commercial banking. We give a worked example of performance attribution on a fixed income portfolio. We discuss the critical role of default risk in the management of equity portfolios. We discus...
Chapter
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This chapter introduces basic fixed income mathematics, including the concepts of present value, zero coupon bond prices, and forward interest rates. It discusses the many assumptions embedded in the yield to maturity concept.
Chapter
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This chapter generalizes the HJM bushy tree approach of Chapter 6 by introducing interest rate volatility that is dependent on both maturity of the forward rate and on rate levels. We provide a worked example of no arbitrage risk-neutral valuation of zero coupon bonds, coupon bearing bonds, and a digital interest rate option.
Chapter
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In this chapter we review legacy approaches to credit risk measurement that have been outperformed by the reduced form approach to credit risk. We start with traditional credit ratings and point out the lack of accuracy in rating agency self-assessment of their own performance. We summarize the conclusions of the U.S. Senate on performance of the r...
Chapter
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We begin this chapter with a review of the legacy approaches to valuing mortgage-backed securities and asset-backed securities. We then discuss a more modern approach where logistic regression or multinomial logit are used to model the probability of prepayment and default as a function of home prices, the interest rate environment and other factor...
Chapter
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This chapter explains why the prevalence of yield curve twists in market yield movements renders single factor term structure models inaccurate. We introduce a two factor HJM model and construct the bushy tree for valuation of zero coupon bonds, coupon-bearing bonds, and digital interest rate options.
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In this chapter we re-introduce the concept of the safety zone and discuss the institutional constraints on interest rate risk mismatching and hedging.
Chapter
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This chapter uses the 3 factor HJM bushy tree from Chapter 9 to value put and call options on a coupon-bearing bond. We also value a bond with a European option to call the bond. We discuss extension of the analysis to options on the bonds of a risky issuer.