Financial Data and the
Challenges for the Analytic
Use Case
Willi Brammertz, CTO ACTUS
© Copyright ACTUS 2013
Date: 07.10.2015
1
The model
© Copyright ACTUS 2013
Date: 07.10.2015
2
Financial contracts
> Financial contract: Central to the system
> What is a financial contract?
> Agreement between two (or more) Counterparties
> To exchange cash flows
> Following a set of rules
> Only deterministic (factual) part of finance
© Copyright ACTUS 2013
Date: 07.10.2015
3
Financial contract as a set of rules
> Lawyers intention
> Expressed esoterically
> Different languages
> Different expressions within language
> Different expressions even within single bank
> Nevertheless clear in intention and understandable
> Can be substituted by computer algorithms
> Substitution by algorithms is necessary condition for the
analytic use case
> The number of rules and their combination is limited
(coverage 98+%)
> One specific set of rules we call Contract Type (CT)
© Copyright ACTUS 2013
Date: 07.10.2015
4
A closer look at financial contracts
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amet autem dionseq uismodigna feumsan dionse dolor
ullandre magna feuipsummy nullum ad tin ….
1000
Bank shall pay the sum of __________
USD on __________
2013.01.01 (date)
to ______
Mr. xzy (obligor). Obligor will pay an interest of ____
10 % on a
semi-annual basis and repay the full amount in 3 years.
Date, Signatur
© Copyright ACTUS 2013
Date: 07.10.2015
5
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Date: 07.10.2015
6
Variations
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amet autem dionseq uismodigna feumsan dionse dolor
ullandre magna feuipsummy nullum ad tin ….
10000
Bank shall pay the sum of __________
USD on __________
2013.01.01 (date)
to ______
Mr. xzy (obligor). Obligor will pay an interest of ____
10 % on a
semi-annual basis and repay the full amount in 3 years.
Date, Signatur
© Copyright ACTUS 2013
Date: 07.10.2015
7
© Copyright ACTUS 2013
Date: 07.10.2015
8
More variations
Endre vullumsandio dion endipsummy nos dolobore vel ut alis
amet autem dionseq uismodigna feumsan dionse dolor
ullandre magna feuipsummy nullum ad tin ….
10000
Bank shall pay the sum of __________
USD on __________
2013.01.01 (date)
to ______
Mr. xzy (obligor). Obligor will pay an interest of ____
10 % on a
2 years.
semi-annual basis and repay the full amount in ___
Date, Signatur
© Copyright ACTUS 2013
Date: 07.10.2015
9
© Copyright ACTUS 2013
Date: 07.10.2015
10
Even more variations
Endre vullumsandio dion endipsummy nos dolobore vel ut alis
amet autem dionseq uismodigna feumsan dionse dolor
ullandre magna feuipsummy nullum ad tin ….
10000
Bank shall pay the sum of __________
USD on __________
2013.01.01 (date)
to ______
Mr. xzy (obligor). Obligor will pay an interest of ____
10 % on a
2 years.
semi-annual basis and repay the full amount in ___
Date, Signatur
© Copyright ACTUS 2013
Date: 07.10.2015
11
© Copyright ACTUS 2013
Date: 07.10.2015
12
CT´s and master agreements
> Master agreements define every aspect of financial
contracts
> Terms and their interpretations
> Algorithms (e.g. interest calculations, option pay off…)
> CT´s can be interpreted as
> Set of global master agreements
> Consistent master agreements across sectors
© Copyright ACTUS 2013
Date: 07.10.2015
13
Data and algorithms
Example of interest calculation I
> Creditor and debtor agree to exchange periodic interest
payments
> This cannot be expressed by data alone. We need
> Data
> Algorithms
> Data
> Interest rate
> Principal and its evolution
> Payment cycles
> Day Count Methods, End of Months Conventions, Business
Day Convention
© Copyright ACTUS 2013
Date: 07.10.2015
14
Data and algorithms
Example of interest calculation II
> The actual payment must be calculated using data and the
algorithms
> Interest payment algorithm needs
> Cycle algorithm
> EoM
> BDC
> Yearfraction calculation (DCM)
> Principal algorithm
> Etc.
© Copyright ACTUS 2013
Date: 07.10.2015
15
What can we learn?
> It´s not about data only. It´s about
> DATA AND
> ALGORITHMS
> A financial contract needs both
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Date: 07.10.2015
16
An analogy
DNA and gene expression
DATA
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ALGORITHMS
Date: 07.10.2015
17
DNA
CT
DNA
CT
> DNA information
> Gene expression
> Context sensitive
> Result: Protein, some
> Contract information
> CT specific algorithm
> Risk factor sensitive
> Result:
other results
> State contingent cash
flows
> Analysis elements
> Important: Cells are
> Contracts must
autark in reproduction
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become autark in
results production
Date: 07.10.2015
18
Autark Financial Contracts
Self executing analysis
Riskfactors
DATA
ALGORITHMS
Basic Results
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Date: 07.10.2015
19
Consequence for XBRL
Open Questions
> XBRL knows how to
move data
Riskfactors
> Does XBRL know,
how to move
algorithms along?
DATA
ALGORITHMS
> What about the
context?
Basic Results
> Input: Risk factors
> Output: Analysis
results
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Date: 07.10.2015
20
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Date: 07.10.2015
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