Grants

Stevens Institute of Technology

To develop both a viable set of open source algorithms that describe financial contract types, as well as a community that will develop, fund, use, and maintain an even more comprehensive set

  • Amount $433,647
  • City Hoboken, NJ
  • Investigator Khaldoun Khashanah
  • Initiative Empirical Economic Research Enablers (EERE)
  • Year 2014
  • Program Research
  • Sub-program Economic Institutions, Behavior, & Performance

Financial contracts range from stocks, options, and futures to loans, annuities, and swaps.  Each has its own rules governing who pays whom under what circumstances.  Understanding the obligations imposed by these real world contracts under various hypothetical future scenarios is essential to evaluating the risks posed by the financial system to the global macroeconomy.  What will happen if oil prices drop precipitously?  What will happen if Chinese growth slows far faster than expected?  What happens if there is another recession in the Eurozone? Project ACTUS (Algorithmic Contract Types Unified Standards), based at the Stevens Institute of Technology, seeks to answer these questions by simplifying the analysis of financial transactions.  In theory, every financial agreement can be modeled algorithmically in terms of just 30 basic paradigms called “contract types.”  Each contract type’s algorithm accepts as inputs both the parameters of the original agreement as well as information about the subsequent state of the world.  It then outputs the payments dictated by the contract to and from its counterparties.  In other words, the algorithm calculates “state dependent cash flows.”  Banks and consultants already have their own proprietary systems that accomplish this, of course, but ACTUS is developing a system that would be comprehensive, standardized, open source, and compatible across organizations.  It would allow the calculation of state dependent cash flows not just within a company, but across entire industries and economies, with potential applications in everything from risk management to regulatory reporting.  A 2012 planning grant from the Sloan Foundation supported ACTUS in the development and testing of the first six contract types.  Funds from this grant will expand the project, allowing the development and testing of six additional types, enough to cover most routine bank transactions.

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