This is research that tries to adapt domain specific language approach in defining operations of Central Counterparty.

1. L.G.H.C. Nalinda
2011CS005
11000058
Domain Specific Language to
Specify Operations of a Central
Counterparty
Supervisor: Dr. Chamath Keppetiyagama

2. Road Map
▷Financial Markets
▷Motivation
▷Haskell Contract Combinator Library (HCCL)
▷Composing Contracts
▷Central Counterparty (CCP)
▷Research Hypothesis
▷Research Literature
▷Architecture
▷Evaluation
▷Progress

3. Financial Markets

4. Financial Markets
▷Vital Governing Sector in Global Economy – Economic Wealth is Presented
▷Early days
Cheque clearing
.Deposit/Withdraw
Today  More Complicated Operations
▷Stakeholders & Financial Institutes
Different stakeholder interests
Different Operations
Linked to each other

5. Stakeholder Interests vs Economic Stability
▷History
Enron
2007 2008 Crisis
Greek Crisis
▷Minimize Risk– Effective Derivative Management
▷Computer Science
Big Data
Data Mining
Real Time Analytics
Neural Networks ++
Financial Markets

6. Motivation

7. DSL for Finance Sector
▷ Define Finance Contracts / Finance Derivatives
Each Derivative  Different Definitions (No Unified Approach)
Tedious Task – Uncertainty, Complexity ++
Processing is More Complex
▷DSL for Finance Sector
Unified Mechanism for Defining Contracts
DSL to Embed Properties of Contracts
▷Benefits
Simple Valuation … Complex Back-End Operation Management
Motivation

8. DSL for Finance Sector[Cntd]
Motivation

9. Haskell Contract
Combinator Library

10. Peyton Jones, Marc-Eber, Julian (2000)
▷Fixed, Precisely Specified Set of Combinators (Unified Mechanism)
▷Describe a Contract
▷Process a Contract
▷Find Value of a Contract
▷Compositional Nature – (Can Glue Combinators Together)
Contract Primitives + Observable Primitives
IntroductionHCCL

11. Primitives for Defining Contracts | HCCL
IntroductionHCCL

12. Primitives for Defining Observables
IntroductionHCCL

13. Composing Contracts

14. Composing ZCB
“Receive £200 on Future Date t1”
C1 = one GBP
C2 = truncate t1 (one GBP)
= truncate t1 (C1)
C3 = scale 200 (truncate t1(one GBP))
= scale 200 (C2)
C4 = get (scale 200 (truncate t1(one GBP)))
get (C3)
IntroductionComposing Contracts
ZCB :: Date -> Double -> Currency -> Contract

15. Contract Definitions
IntroductionComposing Contracts
▷ZCB :: Date  Double  Currency  Contract
▷EU_OPTION :: Date  Contract  Contract
▷AMERICAN_OPTION :: (Date,Date)  Contract  Contract

16. Central Counterparty

17. Absence of CCP
Motivation

18. With CCP
Motivation

19. Operations of CCP
▷Rule Book
MX | LCH | CBOT
▷Margin Calculation
Purpose : No Counterparty Default Occur
At the End of Each Business Day
.
▷Possibilities
Dr. Trader Account
Cr. Trader Account
Restate to Initial Margin
Methodology

20. Rule 9102 – Long Option Position
Margin Requirement
.
Methodology
the period to expiry is greater or equal to 9
months, 50% of the option’s time value, else
100% of the option’s time value
Future Cash Flow
.

21. Research Hypothesis

22. If we can use Peyton Jones’s
language to compose FC/FD, we
can use the same language to
compose CCP Rules

23. Specify Operations of a CCP
Using a Domain Specific
Language approach

24. Research Literature

25. Attempts to Define a Language
▷Lee – Language for Electronics Contracts … Common Logic Model
▷Deursen – Define a Formalized DSL
- Highlight the Implications of such DSL
- Tool Bus Architecture (proposed solutions)
- RISLA
Finance Product Can Describe by it’s Cash Flow
IntroductionResearch Literature
▷LexiFi,
▷HiperFit (http://hiperfit.dk/)

26. Peyton Jones, Marc-Eber, Julian (2000)
▷Fixed, Precisely Specified Set of Combinators
▷Describe a Contract
▷Process a Contract
▷Find Value of a Contract
▷Compositional Nature
Contract Primitives + Observable Primitives
IntroductionResearch Literature

27. Complex Derivatives
▷Mediratta – Credit Default Swap & Power Reverse Dual Currency Swap
▷Valuation – evalC :: Model  Contract
- evalO :: Model  Contract
More Complex Derivatives Can Compose Using Fixed Set of
Combinators & Observables While
Preserving Uniqueness of the Contract
IntroductionResearch Literature

28. Software Language Approach
▷Peyton – Justify that FP Approach Can Use to Define and Value Derivatives
- Lacking Highlighting SE Language Concepts
- No Unified Approach 
▷Gaillourdet – HCCL in a SW Language Point of View
- Provided a Formal Definition for the Language (Syntax)
Syntax of Observables
Syntax of Contract
- Denotational Semantics
Observables
Contracts
IntroductionResearch Literature

29. Environment
▷Facts About Observables and Choices – Symbolic Management of Derivatives
- External to the FC/FD
- Direct impact on the FC/FD
IntroductionResearch Literature

30. Summery
IntroductionResearch Literature
DSL for Finance Sector Has been a Major Requirement Since Early Days
Payton, Eber, Julian HCCL
Mediratta Complex Derivatives
Gaillourdet Software Language Approach
Bahr, Jost, Elsman Symbolic Management of Finance
Contracts & Symbolic Management of
Multiparty Contracts
CCP Operations Have Not Yet Addressed using DSL Approach

31. Architecture

32. Overall Architecture IntroductionArchitecture

33. Derivative
IntroductionArchitecture

34. Rule | Design Architecture IntroductionArchitecture

35. Rule | Hypothesis IntroductionArchitecture
▷Rule_9102 :: DEPENDENT_FACTORS  Contract
▷Factors Identified
- Maturity
- Current Date
- Position
- Options Time Value ++

36. Seed Contract | Outcome of Hypothesis
IntroductionArchitecture

37. Seed Contract | Outcome of Hypothesis
IntroductionArchitecture

38. Operations of CCP
IntroductionArchitecture

39. Derivative Management
▷Seed -> Grow over “n” Periods
▷Comparison of Contracts
▷Comparison of Periods
▷Symbolic Contract Management
- Speicialization
- Reduction
▷Derive unseen Derivatives
Architecture

40. Evaluation

41. The Extent to Which the
Proposed Hypothesis can be
Used to Define Operations of
CCP

42. Progress

43. Completed
▷Research Literature
▷Architecture
▷Constructing Core Level Contracts
(https://github.com/CoolCK/Finance_Contracts_Haskell)
▷Partial Contract Implementation
▷Construction of Rule Using HCCL
▷Finalizing Seed Contract
▷Generate All Possible Results
Progress
Work In Progress

44. THANK YOU 

45. Q&A