Certified symbolic management of financial multi-party contracts

Abstract

Domain-specific languages (DSLs) for complex financial contracts are in practical use in many banks and financial institutions today. Given the level of automation and pervasiveness of software in the sector, the financial domain is immensely sensitive to software bugs. At the same time, there is an increasing need to analyse (and report on) the interaction between multiple parties. In this paper, we present a multi-party contract language that rigorously relegates any artefacts of simulation and computation from its core, which leads to favourable algebraic properties, and therefore allows for formalising domain-specific analyses and transformations using a proof assistant. At the centre of our formalisation is a simple denotational semantics independent of any stochastic aspects. Based on this semantics, we devise certified contract analyses and transformations. In particular, we give a type system, with an accompanying type inference procedure, that statically ensures that contracts follow the principle of causality. Moreover, we devise a reduction semantics that allows us to evolve contracts over time, in accordance with the denotational semantics. From the verified Coq definitions, we automatically extract a Haskell implementation of an embedded contract DSL along with the formally verified contract management functionality. This approach opens a road map towards more reliable contract management software, including the possibility of analysing contracts based on symbolic instead of numeric methods.

A Formally Verified Static Analysis Framework for Compositional Contracts

“…This is a special property of smart contracts that exclusively control resources they have issued or received. 7 CSL specifies digital contracts between the contract parties, independent of any particular third-party contract manager (such as an Ethereum-style smart contract) they may eventually employ for control (execution) [15]. The question of liquidity is inapplicable to a digital contract, but can be posed of a contract manager.…”

“…Note that under the adage of "code is law" an unfair contract is still a contract that cannot be changed: it is what it is. 7 The pattern of pseudonymous parties collateralizing participation in a contract by depositing money with a trusted third party is common and practically unavoidable: The parties being pseudonymous, they could just walk away once they owe more than they are owed. This may explain why each Ethereum-style smart contract is "born" with an associated Ether account.…”

FinPar

“…There are several strands of related work. First, a considerable amount of work has targeted (1) the parallelization of financial computations on many-core hardware [Joshi 2010;Lee et al 2010;Oancea et al 2012]; (2) production integration in large banks' IT infrastructure, such as for efficient, end-to-end pricing of exotic options [Nord and Laure 2011]; or (3) integrating a contract-specification language [Bahr et al 2015] and dynamical graphical user interfaces [Elsman and Schack-Nielsen 2014] within a language-heterogeneous financial framework using type-oriented techniques. Such difficulties have been experienced in other compute-intensive areas as well, such as in interoperating across computer-algebra systems, and have led to point-to-point but ultimately nonscalable solutions [Chicha et al 2004;.…”

Formalization of Automated Trading Systems in a Concurrent Linear Framework

“…Formalization and formal reasoning can play a big role in mitigating these problems. They provide methods to verify properties of complex and infinite state space systems with certainty, and have already been applied in fields ranging from microprocessor design [8], avionics [14], election security [11], and financial derivative contracts [12,2]. Trading systems are a prime candidate as well.…”

“…The contributions of this research are twofold: (1) We formally define an archetypal automated trading system in CLF [5] and implement it as an executable specification in Celf. (2) We demonstrate how to prove some properties about the specification using generative grammars [13], a technique for meta-reasoning in CLF. Γ; ∆; Ψ P 0 Γ; ∆; Ψ, 1 P 0 1 l Γ; ∆; Ψ, P, Q P 0 Γ; ∆; Ψ, P ⊗ Q P 0 ⊗ l Γ, a; ∆; Ψ P 0 Γ; ∆; Ψ, !a P 0 !…”