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Financial Data and the Challenges for the Analytic Use Case. Willi Brammertz, CTO ACTUS. The model. 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
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Financial Data and the Challenges for the Analytic Use Case Willi Brammertz, CTO ACTUS
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
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)
A closer look at financial contracts Endre vullumsandio dion endipsummy nos dolobore vel ut alis amet autem dionseq uismodigna feumsan dionse dolor ullandre magna feuipsummy nullum ad tin …. Bank shall pay the sum of __________ USD on __________ (date) to ______ (obligor). Obligor will pay an interest of ____ % on a semi-annual basis and repay the full amount in 3 years. Date, Signatur 1000 2013.01.01 Mr. xzy 10
Variations Endre vullumsandio dion endipsummy nos dolobore vel ut alis amet autem dionseq uismodigna feumsan dionse dolor ullandre magna feuipsummy nullum ad tin …. Bank shall pay the sum of __________ USD on __________ (date) to ______ (obligor). Obligor will pay an interest of ____ % on a semi-annual basis and repay the full amount in 3 years. Date, Signatur 10000 2013.01.01 Mr. xzy 10
More variations Endre vullumsandio dion endipsummy nos dolobore vel ut alis amet autem dionseq uismodigna feumsan dionse dolor ullandre magna feuipsummy nullum ad tin …. Bank shall pay the sum of __________ USD on __________ (date) to ______ (obligor). Obligor will pay an interest of ____ % on a semi-annual basis and repay the full amount in ___ years. Date, Signatur 10000 2013.01.01 Mr. xzy 10 2
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 …. Bank shall pay the sum of __________ USD on __________ (date) to ______ (obligor). Obligor will pay an interest of ____ % on a semi-annual basis and repay the full amount in ___ years. Date, Signatur 10000 2013.01.01 Mr. xzy 10 2
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
Data and algorithmsExample 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
Data and algorithmsExample 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.
What can we learn? • It´s not about data only. It´s about • DATA AND • ALGORITHMS • A financial contract needs both
An analogyDNA and gene expression DATA ALGORITHMS
DNACT DNA • DNA information • Gene expression • Context sensitive • Result: Protein, some other results • Important: Cells are autark in reproduction CT • Contract information • CT specific algorithm • Risk factor sensitive • Result: • State contingent cash flows • Analysis elements • Contracts must become autark in results production
Autark Financial ContractsSelf executing analysis Riskfactors ALGORITHMS DATA Basic Results
Consequence for XBRLOpen Questions • XBRL knows how to move data • Does XBRL know, how to move algorithms along? • What about the context? • Input: Risk factors • Output: Analysis results Riskfactors ALGORITHMS DATA Basic Results