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Abstract. McCarthy developed a framework for modeling the economic rationale of different business transactions along the enterprise value chain described in his seminal article "The REA Accounting Model -A Generalized Framework for Accounting Systems in a Shared Data Environment" Originally, the REA accounting model was specified in the entity-relationship (ER) language. Later on other languages -especially in form of generic data models and UML class models (UML language) -were used. Recently, the OntoUML language was developed by Guizzardi and used by Gailly et al. for a metaphysical reengineering of the REA enterprise ontology. Although the REA accounting model originally addressed the accounting domain, it most successfuly is applied as a reference framework for the conceptual modeling of enterprise systems. The primary research objective of this article is to anchor the REA-based models more deeply in the accounting domain. In order to achieve this objective, essential primitives of the REA model are identified and conceptualized in the OntoUML language within the Asset Liability Equity (ALE) context of the traditional ALE accounting domain.

Derivative instruments have special characteristics that make them difficult to understand and to handle in financial instrument accounting. In the OntoREA© Accounting and Finance Model [1] such instruments are conceptualized and integrated into the REAC Business Ontology [2] as well as the OntoREA Accounting Model [3]. But the OntoREA© model is developed at a very abstract level so that no real cases are used for demonstration and evaluation. This shortcoming is addressed in this article by demonstrating and evaluating the Collective conceptualization of derivative instruments in OntoREA© from a retroactive design science methodological (DSRM) [4] perspective within the model driven software development (MDD) context. Along the model transformations in this context the OntoREA© model serves as platform independent (PIM) model. For demonstration purposes its direct translation into a platform specific (PSM) as well as an implementation specific (ISM) model are demonstrated for a real derivative instrument. The evaluation shows that the requirements of derivative instruments are met adequately.

OntoREA© is a specification of the Accounting and Finance domain in the OntoUML language [1]. In a previous article [2] the authors use a forward contract financial derivative instrument to demonstrate the validity of the OntoREA© model within the design science research methodology (DSRM) [3]. A forward contract does not change over time and therefore can be modelled as static hedge portfolio composition. However, it is of interest if the On-toREA© model can also hold true for dynamic hedge portfolio compositions, as induced by option contract financial derivative instruments. This article investigates on that and delivers proof that the OntoREA© model is suitable for option contracts as well. Through adequately refining the platform specific database model (PSM) the policy's dynamic nature can be demonstrated. Moreover, including a Plan/Do/Check/Act (PDCA) process model for the specification of the option contract replication also demonstrates the information processing in the REA accounting infrastructure. The proposed approach is implemented into an R/Shiny software prototype where the 3-tier-architecture is used to integrate the database and the PDCA process model at the R/Shiny implementation specific model (ISM) level. The presented hedge portfolio representation of derivatives can be useful for business analysts in the finance and accounting domain as well as for teaching financial derivative instruments.

The OntoREA© accounting and finance model [1] indicates already in its name a fundamental distinction, i.e. the distinction between the accounting related backward looking perspective into the past and the finance related forward looking perspective into the future. Accordingly, in accounting current economic events are recorded and persisted and in finance future related commitments are addressed. Concerning the completeness of accounting and finance concepts there is an asymmetry in the OntoREA© model. The accounting concepts are completely covered, whereas in the coverage of the forward looking finance perspective one main deficiency exists: The uncertainty surrounding the forward looking perspective is not specified.In this article the problem of the missing uncertainty representation in the OntoREA© accounting and finance model is explicitly addressed. The novel approach consists in directly linking uncertainty to commitments. By conceptualizing uncertainty according to the stochastic concepts that underlie the option pricing [2-4] and the intertemporal equilibrium pricing theory [5], the missing representation is solved. Furthermore, the stochastic concepts have a precise ontological meaning [6,7]. Hence, the extension of the current model with the proposed uncertainty representation gives a well-founded stochastic model of the accounting and finance domain.