The OntoREA© Accounting and Finance Model: A Retroactive DSRM Demonstration Evaluation

Abstract

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© Accounting and Finance Model: Hedge Portfolio Representation of Derivatives

“…The primary research objective of this article is the delivery of the proof that the hedge portfolio representation of derivative instruments specified in the OntoREA© PIM model covers not only unconditional (forward contracts) but conditional (option contracts) as well. This proof is delivered in the MDD-context by translating the On-toREA© PIM model into a PSM database model which is refined compared to [2]. The refinement refers especially to the separation of master and transactional data, which allows the adequate inclusion of the hedge portfolio data representation.…”

“…In a preceding article contributing to the OntoREA© Finance and Accounting model research, a forward contract is used to demonstrate validity of the OntoREA© Accounting and Finance Model by specifying a static hedge portfolio representation [2]. The OntoREA© model act as conceptual platform independent model (PIM) for the development of a platform specific PostgreSQL relational database model (PSM) within the model-driven software development context (MDD).…”

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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.

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The OntoREA© Accounting and Finance Model: Inclusion of Future Uncertainty

“…The ontological expressiveness provided by the OntoUML language underlying the OntoREA© accounting and finance model showed especially useful for the modeling of the temporal modal behavior of derivative financial instruments [15,16]. Depending on the market value, derivative instruments can be assets, if the value is positive, or liabilities, if the value is negative.…”