Rethinking Financial Derivatives Inspired by Smart Contracts - A Request for Comments
5 Pages Posted: 9 Oct 2018
Date Written: September 12, 2018
On September 15, 2008, the US investment bank Lehman Brothers filed for bankruptcy. Ten years later some claims still remain unsettled.
Although Lehman’s derivative portfolio was not the reason for its bankruptcy, its notional of $35 trillion accounted for 5% of the total derivative market. Derivative contracts remain relevant tools for risk management and the global economy. In 2017, the notional of the OTC derivative market was $530 trillion and accounted for a market value of $12 trillion.
Despite extensive regulatory changes and improvements, settlement risks of derivatives remain complex and hard to manage–and hence costly.
Is it possible to use technologies like Distributed Ledgers and Smart Contracts to rethink derivatives from scratch? In this note we try to provide some answers.
Keywords: Settlement Risk, Financial Derivatives, Smart Contract, Distributed Ledger
JEL Classification: G12, G01
Suggested Citation: Suggested Citation