The document discusses the need for ontologies and conceptual modeling in the financial derivatives industry. It notes that a 2010 law requires regulators to study using standardized computer-readable descriptions of derivatives. These descriptions could serve as legal definitions if together with standardized definitions. The document suggests that ontologies may help define and describe derivatives transactions and positions, and questions how financial institutions currently approach this. It asks about what ontologies are used, how they are maintained and extended to cover new products, and their scope and limitations.

1. Foundational Ontology,
Conceptual Modeling
and Data Semantics
Giancarlo Guizzardi
gguizzardi@acm.org
http://nemo.inf.ufes.br
Computer Science Department
Federal University of
GT OntoGOV (W3C Brazil), Espírito Santo (UFES),
São Paulo, Brazil Brazil

2. http://nemo.inf.ufes.br/

5. http://www.inf.ufrgs.br/cita2011/

6. http://www.inf.ufrgs.br/ontobras-most2011/

7. http://iaoa.org/

11. The Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'‘) was enacted on July 21, 2010. The Dodd-Frank
Act, among other things, mandates that the Commodity Futures
Trading Commission (``CFTC'') and the Securities and Exchange
Commission (``SEC'') conduct a study on ``the feasibility of requiring
the derivatives industry to adopt standardized computer-readable
algorithmic descriptions which may be used to describe complex
and standardized financial derivatives.'' These algorithmic
descriptions should be designed to ``facilitate computerized
analysis of individual derivative contracts and to calculate net
exposures to complex derivatives.'' The study also must consider
the extent to which the algorithmic description, ``together with
standardized and extensible legal definitions, may serve as the
binding legal definition of derivative contracts.'‘

12. 7. Do you rely on a discrete set of computer-readable descriptions
(``ontologies'') to define and describe derivatives transactions and
positions? If yes, what computer language do you use?
8. If you use one or more ontologies to define derivatives
transactions and positions, are they proprietary or open to the
public? Are they used by your counterparties and others in the
derivatives industry?
9. How do you maintain and extend the ontologies that you use to
define derivatives data to cover new financial derivative products?
How frequently are new terms, concepts and definitions added?
10. What is the scope and variety of derivatives and their
positions covered by the ontologies that you use? What do they
describe well, and what are their limitations?
.

13. SEMANTIC INTEROPERABILITY: THE
PROBLEM

14. “What are ontologies and why we
need them?”
1. Reference Model of Consensus to support different types of
Semantic Interoperability Tasks
2. Explicit, declarative and machine processable artifact coding
a domain model to enable efficient automated reasoning

15. M

16. Type
ObjectType
Sortal Type Mixin Type
Rigid Sortal Type Anti-Rigid Sortal Type Anti-Rigid MixinType
Kind Phase Role RoleMixin

17. ?
Type
ObjectType
Sortal Type Mixin Type
Rigid Sortal Type Anti-Rigid Sortal Type Anti-Rigid MixinType
Kind Phase Role RoleMixin

18. Type
ObjectType
Sortal Type Mixin Type
Rigid Sortal Type Anti-Rigid Sortal Type Anti-Rigid MixinType
Kind Phase Role RoleMixin

19. R
?
Type
ObjectType
Sortal Type Mixin Type
Rigid Sortal Type Anti-Rigid Sortal Type Anti-Rigid MixinType
Kind Phase Role RoleMixin

20. R
R’
Type
ObjectType
Sortal Type Mixin Type
Rigid Sortal Type Anti-Rigid Sortal Type Anti-Rigid MixinType
Kind Phase Role RoleMixin

21. Situations represented by Admissible state of affairs
the valid specifications of according to a
language L conceptualization C

22. State of affairs
represented
by the valid models
of Ontology O1 State of affairs represented by the valid models
of Ontology O2
Admissible state of affairs
according to the
conceptualization
underlying
O2
Admissible state of affairs
according to the conceptualization underlying
O1

23. State of affairs
represented
by the valid models
of Ontology O1 State of affairs represented by the valid models
of Ontology O2
Admissible state of affairs
according to the
conceptualization
underlying
O2
Admissible state of affairs
according to the conceptualization underlying
O1
FALSE AGREEMENT!

24. “one of the main reasons that so many
online market makers have foundered
[is that] the transactions they had
viewed as simple and routine actually
involved many subtle distinctions in
terminology and meaning”
(Harvard Business Review)

25. 1. We need to recognize that There
is not Silver Bullet! and start seing
ontology engineering from an
engineering perspective

26. A Software Engineering view…
Conceptual Modeling
Implementation1 Implementation2 Implementation3

27. A Software Engineering view…
Conceptual Modeling
DESIGN
Implementation1 Implementation2 Implementation3

28. …transported to Ontological Engineering
Ontology as a
Conceptual Model
Ontology as Ontology as Ontology as
Implementation1 Implementation2 Implementation3
(SHOIN/OWL-DL, (CASL) (Alloy, F-Logic…)
DLRUS)

29. …transported to Ontological Engineering
Ontology as a
Conceptual Model
DESIGN
Ontology as Ontology as Ontology as
Implementation1 Implementation2 Implementation3
(SHOIN/OWL-DL, (CASL) (Alloy, F-Logic…)
DLRUS)

30. Semantic Networks
(Collins & Quillian, 1967)

31. KL-ONE (Brachman, 1979)

32. The Logical Level
∃x Apple(x) ∧ Red(x)

33. The Epistemological Level
Apple Red
color = red sort = apple

34. The Ontological Level
sortal universal characterizing
Universal
Apple Red
color = red sort = apple

35. Formal Ontology
• To uncover and analyze the general categories and principles
that describe reality is the very business of philosophical
Formal Ontology
• Formal Ontology (Husserl): a discipline that deals with
formal ontological structures (e.g. theory of parts, theory of
wholes, types and instantiation, identity, dependence, unity)
which apply to all material domains in reality.

36. Foundational Ontology
• We name a foundational ontology the product of the
discipline of formal ontology in philosophy
• A foundational ontology is a formal framework of generic
(i.e. domain independent) real-world concepts that can be
used to talk about material domains.

37. represented by Conceptual
Foundational
Ontology Modeling
interpreted as Language

38. Cognitive represented by
Foundational UML
Ontology (UFO) interpreted as

39. 2. We need ontology
representations languages which
are based on Truly Ontological
Distinctions

40. Formal Relations
0 Weight Quality Dimension
w1 w2
heavier (Paul, John)?
Paul
John

41. Material Relations
1..* treated In 1..*
«role» «kind»
Patient Medical Unit

42. Material Relations
How are these cardinality constraints to be interpreted ?
In a treatment, a patient is treated by several medical
units, and a patient can participate in many
treatments
In a treatment, a patient is treated by several medical
units, but a patient can only participate in one
treatment
In a treatment, several patients can be treated by one
medical unit, and a medical unit can participate in
many treatments
In a treatment, a patient is treated by one medical unit,
and a patient can participate in many treatments
...

43. The problem is even worse in n-ary associations (with n >
2)

45. Explicit Representation for Material Relations
«mediation» «relator» «mediation»
Treatment
1..* 1..*
1 1..*
«material»
/TreatedIn
Patient MedicalUnit
1..* 1..*

46. Material Relations
As seen before from a relator and mediation relation
we can derive several material relations
Asides from all the benefits previously mentioned,
perhaps the most important contribution of
explicitly considering relations is to force the
modeler to answer the fundamental question of
what is truthmaker of that relation

47. Material Relations
Yet another example:
Modeling that a graduate student have one or more
supervisors and a supervisor can supervise one or
more students

48. Material Relations
Yet another example:
Modeling that a graduate student have one or more
supervisors and a supervisor can supervise one or
more students

50. Unified Foundational Ontology (UFO)
UFO-C (SOCIAL ASPECTS)
(Agents, Intentional States, Goals, Actions,
Norms, Social Commitments/Claims, Social Dependency Relations…)
UFO-A (STRUCTURAL ASPECTS) UFO-B (DYNAMIC ASPECTS)
(Objects, their types, their parts/wholes, (Events and their parts,
the roles they play, Relations between events,
their intrinsic and relational properties Object participation in events,
Property value spaces…) Temporal properties of entities, Time…)

51. 3. We need Patterns
- Design Patterns
- Analysis Patterns
- Transformation Patterns
- Patterns Languages

52. Roles with Disjoint Allowed Types
«role»Customer
Person Organization

53. Roles with Disjoint Allowed Types
Person Organization
«role»Customer

54. participation
Participant Forum
1..* *
Person SIG

55. Roles with Disjoint Admissible Types
«roleMixin»
Customer

56. Roles with Disjoint Allowed Types
«roleMixin»
Customer
«role» «role»
PersonalCustomer CorporateCustomer

57. Roles with Disjoint Allowed Types
«roleMixin»
Customer
Person Organization
«role» «role»
PersonalCustomer CorporateCustomer

58. «roleMixin» «kind» «roleMixin» «kind»
Customer Social Being Participant Social Being
«kind» Organization «kind» SIG
Person Person
«role» «role» «role» «role»
PrivateCustomer CorporateCustomer IndividualParticipant CollectiveParticipant

59. Roles with Disjoint Admissible Types
1..*
F
«roleMixin» 1..*
A
D E
«role» «role»
B C

60. Quality, Quality Values and Quality
Dimensions
c::Color
c
v2
Color Quality Space
a w
a::Apple w::Weight
v1
0
Weight Quality Space

61. Representing Qualities and Quality
Structures Explicitly

62. Representing Qualities and Quality
Structures Explicitly
HSBColorDomain
i
<h1,s1,b1>
a::Apple c::Color
equivalence
RGBColorDomain
<r1,g1,b1>

63. John
part-of
part-of
part-of

64. John’s Brain
part-of
John
part-of
part-of

67. enrolled at
Student Course
20..* 1
1 1
representative for

69. 4. We need tools to create, verify,
validate and handle the
complexity of the produced
models

70. NamedElement 1..* /relatedElement
Type
name:String[0..1] Element
/source 1..*
1..* /target
specific
*
Classifier
Relationship
isAbstract:Boolean = false 1
/general
1 general DirectedRelationship
Class
generalization
Generalization
*
GeneralizationSet * *
isCovering:Boolean = false
isDisjoint:Boolean = true
Object Class
{disjoint, complete}
Sortal Class Mixin Class
{disjoint, complete} {disjoint, complete}
Rigid Sortal Class Anti Rigid Sortal Class Rigid Mixin Class Non Rigid Mixin Class
{disjoint, complete}
{disjoint, complete} {disjoint, complete}
Anti Rigid Mixin Class Semi Rigid Mixin
Substance Sortal SubKind Phase Role Category RoleMixin Mixin
{disjoint, complete}
Collective
Kind Quantity
isExtensional:Boolean

73. Tool Support
The underlying algorithm merely has to check structural properties of the
diagram and not the content of involved nodes

75. 1..* «mediation»
«role»
Transplant Surgeon
«kind»
«role»Organ Donee
Person
1
«mediation»
1..*
«mediation»
«role»Organ Donor «relator»Transplant
1 1..* 1..*

76. ATL Transformation
Simulation and Visualization
Alloy Analyzer + OntoUML visual Plugin

78. SEMANTIC INTEROPERABILITY: THE
PROBLEM REVISITED

79. representation interpretation
M

80. semantic distance (δ)
representation interpretation
M

81. when δ < x then we consider the communication to be effective, i.e., we assume the
existence of single shared conceptualization
semantic distance (δ)
representation interpretation
M

82. δ
R
R’
Type
ObjectType
Sortal Type Mixin Type
Rigid Sortal Type Anti-Rigid Sortal Type Anti-Rigid MixinType
Kind Phase Role RoleMixin

83. Consistent
Integrated Use

85. Small δ, Small Ontology Big δ, Small Ontology
Well-Founded
Techniches
Matching &
Alignment
Techniches
Small δ, Big Ontology Big δ, BIg Ontology

86. Small δ, Small Ontology Big δ, Small Ontology
Some Flexibility
Well-Founded
Techniches
Matching &
Alignment
Techniches
Small δ, Big Ontology Big δ, BIg Ontology

87. Small δ, Small Ontology Big δ, Small Ontology
Some Flexibility
Well-Founded
Techniches
Matching &
Alignment
Techniches
Intractable!
Small δ, Big Ontology Big δ, BIg Ontology

88. State of affairs
represented
by the valid models
of Ontology O1 State of affairs represented by the valid models
of Ontology O2
Admissible state of affairs
according to the
conceptualization
underlying
O2
Admissible state of affairs
according to the conceptualization underlying FOUNDATIONAL
O1
ONTOLOGY

89. The alternative to ontology is
not “non-ontology” but bad
ontology!

90. http://nemo.inf.ufes.br/
gguizzardi@inf.ufes.br