Consulting Services ∫ Financial Engineering ∫ Hedging Solutions & Strategies ∫ Quantitative Analysis ∫ Financial Derivative Valuation Models ∫ Risk Management Models and Analysis ∫ IFRS 9, AIRB and BCBS ∫ Counterparty Credit Risk Analysis ∫ Structured Derivatives ∫ Model Validation and Verification under Basel III ∫ Modeling Complex Optionality ∫ Central Counterparty (CCP) Risk ∫ Research ∫ Training Workshops/Seminars (public and in-house) ∫ Model Building/Software Development ∫ Valuation of Private Company Shares/Equity ∫ Probability of Default Analysis ∫ Expert Witnesses
Financial Chaos Theory was founded, and still is, an independent consulting firm. We specialise in derivatives pricing, hedging solutions and model validation. We have considerable Basel AIRB and IFRS 9 experience. All transpired in 2003 due to a demand for quality independent solutioning, valuations and model verification and validation in the financial derivatives and structured trade markets. We are a boutique in the financial engineering field with an emphasis on modelling and valuing the complexity of financial derivatives. We bring world-class financial technology, risk management, expertise and practical experience in derivatives to trading houses and corporates.We round all off with specialist training courses and workshops.
With one foot firmly planted in academia, we bridge the gap between academic research and the practicalities of the trading floor and risk management practices within trading houses and financial services companies.
FCT is an independent derivatives pricing specialist and vendor where we cover both OTC and exchange traded derivatives. We are professionally qualified in giving independent market-based valuations on financial instruments and helping clients in finding the correct hedging strategies for their exposures. We further help our clients in fulfilling their regulatory requirements for disclosure and transparency by improving the standards for derivatives pricing. We can also be called upon as expert witnesses relating to financial derivatives pricing, trading and/or ISDA related issues. Instruments include all OTC derivatives like swaps, cross currency swaps, FX options, credit derivatives and structured options trades including Employee Share Incentive Schemes, Employee Share Ownership Plans (ESOP) and Employee Stock Options (ESO). We have all the tools and expertise to value hard to value OTC products using advanced modeling techniques.
If you need guidance with any of the new accounting rules or the Basel III/IV (BCBS) regulatory framework, contact us. We can help with IFRS 9 (impairments) and ECL (due by 1 January 2018); The Fundamental Review of the Trading Book (FRTB) due by January 2019; BCBS Credit Risk (AIRB) and Accounting for Expected Credit Losses; the Basel III leverage ratio framework; Liquidity Coverage Ratio (LCR); Minimum capital requirements for market risk; Risks not in VaR (RNIV); Interest Rate Risk in the Banking Book (IRRBB); Credit/Debit Valuation Adjustments (CVA/DVA) and all xVAs.
Since the new Basel III capital requirements for bank's trade exposures to qualifying central counterparties (CCPs) were published we built up experience in all calculations in measuring risk exposures and regulatory capital adequacy rules for banks' exposures to CCPs and counterparty credit risk (CCR). These includes all standards set by CPSS-IOSCO. We are fully versed in quantifying a default fund, the risk waterfall and in implementing the Current Exposure Method (CEM) when determining the Hypothetical Capital for a CCP.
Since the global financial crises of 2008 and the European debt crisis, OTC Derivatives oversight has become a hot topic. In September 2009, G-20 Leaders agreed that: "All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest." We have all the necessary expetise to help clients in this regard with independent valuations of complex derivatives instruments like swaps and FX forwards and options. We can help clients with implementing an OTC clearing strategy and help CCPs in becoming CPSS-IOSCO compliant (Basel III) where they need to estimate the capital exposure and capital requirements for individual clearing members.
Independent and transparent valuations are becoming extremely important. This is what senator Carl Levin had to say about the JP Morgan whale trade on March 15, 2013: "We need to strengthen how derivatives are valued to stop inflated values. Regulators should encourage banks to use independent pricing services to stop the games; require disclosure of valuation disputes with counterparties; and require disclosure and justification when, as occurred at JPMorgan, derivative values deviate from midpoint prices." He went on: "Federal regulators should require disclosure of any newly implemented risk model or metric which, when implemented, materially lowers purported risk, and investigate the changes for evidence of model manipulation.""It has been my experience that competency in mathematics, both in numerical manipulations and in understanding its conceptual foundations, enhances a person's ability to handle the more ambiguous and qualitative relationships that dominate our day-to-day financial decision-making."
Alan Greenspan (1926 - )
what we doIndependent valuation of derivatives
and financial instruments
BEE scheme valuation
Share based payment valuation
under IFRS 2
Corporate Finance derivative
structures like M&A
Financial derivative model building
Software development Research
about usthe online home of Financial Chaos Theory (FCT), an expert and independent consulting firm and financial training company, risk management consultants and software developer in the financial derivative and stock markets.
publicationsExcel and VBA calculators
Books and Course Notes