Probability and statistics OTC clearing CPSS IOSCO Default warranty fund

what we do

  • Consulting and Project Management Services

  • Financial Engineering and Quantitative Analysis

  • Financial Derivative Valuation Models

  • Risk Management Models and Analysis including Hedging Strategies and Solutions

  • IFRS 9 and AIRB Implementations and 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

  • Company Probability of Default Analysis

  • Expert Witness

Financial Chaos Theory was founded as an independent derivatives consulting firm in 2003 due to a demand for quality solutioning in the financial derivatives markets - OTC and exchange traded. We are a boutique in the financial engineering and risk management fields with an emphasis on modelling the complexity of financial derivatives and structured transactions in a developing markets context. more

After the financial crises of 2008, OTC Derivatives oversight has become a hot topic. In September 2009, G-20 Leaders agreed in Pittsburgh 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. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements." Financial Chaos Theory can be of assistance in advising clients on how to utilise exchanges or clearing houses in trading OTC financial products. We have helped clients with implementing Basel 3 regulations as applied to Central Counter Parties (CCPs). A default/guaranty fund is now compulsory and we can help clients in getting CPSS-IOSCO compliant.

As an independent pricing expert (vendor) and valuation specialist we help our clients in fulfilling their regulatory requirements for disclosure and transparency by improving the standards for derivatives valuation. These include the pricing of hard-to-value and complex securities and structured trades. We are also of assistance if you need an expert witness.

International Financial Reporting Standards (IFRS) have been compulsory for South African listed companies for accounting periods commencing on or after 1 January 2005 - more than 100 countries have adopted IFRS. Value is thus high on every corporate agenda. Financial Chaos Theory has the experience and expertise to provide independent opinions and valuations on financial instruments.more

Derivatives and structured financial transactions are specialised fields and it is in the interest of any company to get independent advisors to confirm the valuations thereof. FCT specialises in derivative instruments and structured financial transactions. All our valuations will be IFRS compliant. We also support corporate advisors in litigation or disputes be it for arbitration, legal or regulatory purposes. We can assist in submissions to and be called as expert witnesses at court hearings or hearings of the Securities Regulation Panel (SRP) (see more

Financial Chaos Theory was contracted by the JSE to developed the valuation models used by Safex to Mark-to-Model the exotic options listed as Can-Do futures. more

We strives to be our clients' complete source for and experts on quantitative analysis and education related to the more technical side of (buy and sell side)

  • Independent derivatives pricing and model validation
  • Expert witnesses
  • Derivatives clearing, collateralised finance and counterparty credit risk and the Basel III definition of banks' exposures to central counterparties. This include the current exposure method (CEM), stress testing and exposure at default (EAD).
  • Quantifying a CCPs default/guaranty fund and risk waterfall under Basel III criteria. We implemented the CEM, expected shortfall (ES), Expected Tail Loss (ETL), Conditional VAR and Value at Risk (VAR) models.
  • Estimating initial margins (or collateral to be posted) for futures and options using Value at Risk (VAR), expected Tail Loss (ETL) and Expected Shortfall (ES) methods.
  • The valuation and modelling of BEE transactions for audit, risk management, financial statement and hedging purposes. more
  • the creation, valuation and modelling of employee share incentive schemes (EOS) or share based payment schemes.more
  • the valuation of derivatives (optionality) embedded in corporate finance transactions.more
  • the creation and valuation of structured derivatives to compensate advisors. more
  • pricing, valuation and modelling of traded equity, agricultural, interest rate and foreign exchange (FX) derivatives. more
  • the optimal valuation of derivatives by utilising volatility skews, smiles or surfaces. These include LOCAL and IMPLIED volatility surfaces. We use finite difference and Monte Carlo methods.
  • the building of local or stochastic implied volatility surfaces through Implied Binomial or Trinomial Trees and/or parameterisation methods and the optimal calibration of the models to fit the term structure of volatility.
  • structuring and issuing of derivative instruments on an exchange.
  • derivative structures like guaranteed investment products.
  • developing software valuation tools and systems for all of the above.

In our niche and specialised field of expertise we give our clients a comprehensive consulting service.more

MOST IMPORTANTLY, we can explain any or all of the above in plain English or pure mathematics to all sorts of people, with and without Ph.D.s -- such as controllers, auditors, traders, quants, asset managers, risk managers, hedge fund investors, and board members. Caveat: Of course, even we couldn't explain a model to all these people in the same room, at the same time, in the same language.

"Philosophy is written in that great book whichever
lies before our gaze - I mean the universe -
but we cannot understand if we do not first learn the
language and grasp the symbols in which it is written.
The book is written in the mathematical language, and
the symbols are triangle, circles and other geometrical
figures, without the help of which it is impossible to
conceive a single word of it, and without which one
wonders in vain through a dark labyrinth."

Galileo Galileo 1694-1723