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finmath smart derivative contracts

Algorithms and methodologies related to smart derivative contracts.

Introduction

The finmath smart-derivative-contract project provides open source implementations of methodologies related to smart derivative contracts in Java and Solidity.

The projects contain multiple parts: documentation, schema definitions (XML), demo code, valuation oracle.

Literature

For a technical/mathematical description of the concept of a smart derivative contract see https://ssrn.com/abstract=3163074

For non-technical description see the articles section.

Standards (Protocols)

For details see the solidity page.

ERC-6123 Smart Derivative Contract

See https://eips.ethereum.org/EIPS/eip-6123

ERC-7573 Secure Delivery-versus-Payment

See ERC 7573.

Visualization and Demonstration

The package net.finmath.smartcontract.democontains a visualization of a smart derivative contract. This is a Java FX application. Run VisualiserSDC or scripts/start-demo-visualization.sh.

Valuation Service (ReST service)

You may also run the valuation service through our Docker image (see below).

If you like to run the the valuation service locally from this repository, running mvn spring-boot:run or runnning net.finmath.smartcontract.service.Appplication starts a ReST service providing a valuation oracle.

Username and password are configured in the application.yml. Default values are user1 and password1.

Swagger UI for the ReST Enpoints

Once the service is running, a swappger UI is available under http://localhost:8080/swagger-ui/index.html.

Simple UI for the Endpoints

A simple UI is provided under https://localhost:8080.

Enpoints

The enpoint https://localhost:8080/valuation/value allows the valuation of a financial product under given market data.

The enpoint https://localhost:8080/valuation/margin allows the calculation of the settlement amount between two market data sets.

The market data has to be provided as a JSON. The product data as to be provided as an XML (containing a part being an FPML of the underlying product).

See also api.yml.

Value

The endpoint value calculates the value of a financial product with given market data.

The endpoint parameters are

  • product P
  • market data M
  • valuation time t (see note below)

Note: The valuation time t is currently taken from the market data set M

The result is the value

  • V(P,M,t)

Note: The valuation time t is currently taken from the market data set M1

Margin

The enpoint parameters are

  • product P
  • market data M0 (market data at previous margin call or initial valuation)
  • market data M1 (market data for margin call)
  • valuation time t (see note below)

The result is the value

  • M(P,M0,M1,t) = V(P,M1,t) - V(P,M0,t)

Note: The valuation time t is currently taken from the market data set M1

Valuation Library

The underlying valuation library is finmath lib.

Settlement Amount Oracle and Valuation Oracle

The package net.finmath.smartcontract.oracle contains the interface describing a so called oracle providing the settlement amount for a smart derivative contract. The package contains also an implementation for interest rate swaps.

State Machine Model for a Smart Derivative Contract

The package net.finmath.smartcontract.statemachine contains a simple state machine modeling a smart derivative contract. This part may be somewhat outdated as we did not reflect recent changes to the Solidity implementation in the state machine, but it still contains the main ideas.

Financial Product Description

The smart derivative contract is described in terms of the sdc.xml.

For a sample XML and the XSD see resources/net/finmath/smartcontract/product/xml.

Docker: Running Valuation Service

See Valuation Service.

Docker: Building the Docker Container

See Docker Build.

Developer Resources

Languages and Build

The project requires Java 17 or better.

The Maven build file is provide. Import the project as Maven project.

Distribution

finmath smart-derivative-contract is distributed through the central maven repository. It's coordinates are:

	<groupId>net.finmath</groupId>
	<artifactId>finmath-smart-derivative-contract</artifactId>
	<version>${project.version}</version>

Coding Conventions

We follow losely the Eclipse coding conventions, which are a minimal modification of the original Java coding conventions. See https://wiki.eclipse.org/Coding_Conventions

We deviate in some places. See coding conventions for details.

License

The code is distributed under the Apache License version 2.0, unless otherwise explicitly stated.