Rethinking Financial Derivatives Inspired by Smart Contracts - A Request for Comments

5 Pages Posted: 9 Oct 2018

See all articles by Christian P. Fries

Christian P. Fries

Ludwig Maximilian University of Munich (LMU) - Faculty of Mathematics; DZ Bank AG

Peter Kohl-Landgraf

DZ Bank AG

Date Written: September 12, 2018

Abstract

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

Fries, Christian P. and Kohl-Landgraf, Peter, Rethinking Financial Derivatives Inspired by Smart Contracts - A Request for Comments (September 12, 2018). Available at SSRN: https://ssrn.com/abstract=3249430 or http://dx.doi.org/10.2139/ssrn.3249430

Christian P. Fries (Contact Author)

Ludwig Maximilian University of Munich (LMU) - Faculty of Mathematics ( email )

Theresienstrasse 39
Munich
Germany

DZ Bank AG ( email )

60265 Frankfurt am Main
Germany

Peter Kohl-Landgraf

DZ Bank AG ( email )

60265 Frankfurt am Main
Germany

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