How to Ensure Fairness in Option Contracts

Table of Links

1. Abstract and Introduction

2. Preliminaries

3. Overview

4. Protocol

   4.1 Efficient Option Transfer Protocol

   4.2 Holder Collateral-Free Cross-Chain Options

5. Security Analysis

   5.1 Option Transfer Properties

   5.2 Option Properties

6. Implementation

7. Related Work

8. Conclusion and Discussion, and References

A. Codes

• A.1 Robust and Efficient Transfer Protocol
• A.2 Holder Collateral-Free Cross-Chain Options

B. Proofs

• B.1 Transfer Protocol Proofs
• B.2 Option

5.2 Option Properties

In addition to the properties of the protocol during the option transfer process, here we explore the properties of option contracts.

• Option correctness: If both the holder and writer are conforming, either the exercise does not occur, the holder does not lose their collateral and the writer does not lose their collateral and guarantee; or upon completion of the exercise, they will each receive the other’s collateral, and the writer will reclaim their guarantee.

• Exercisablity: During the transfer of the writer position, the option holder can exercise the option without experiencing any delays or obstructions.

• Failure compensation: If the holder initiates the exercise before expiration, he will either successfully exercise the option or receive the pre-agreed compensation guarantee.

Theorem 6. Protocol 4.2 satisfies option correctness: If both the Alice and Bob are conforming, then if Alice does not exercise the right, Alice doesn’t lose the 𝐴𝑠𝑠𝑒𝑡𝐴 and Bob doesn’t lose the 𝐴𝑠𝑠𝑒𝑡𝐺 and 𝐴𝑠𝑠𝑒𝑡𝐵; or if Alice exercise the right, then Alice will receive 𝐴𝑠𝑠𝑒𝑡𝐵 and Bob will receive 𝐴𝑠𝑠𝑒𝑡𝐴 and 𝐴𝑠𝑠𝑒𝑡𝐺 .

Theorem 7. Protocol 4.2 satisfies exercisablity: During the transfer from Bob to Dave, the option remains active, allowing Alice to exercise the option without any delays.

Theorem 8*. Protocol 4.2 satisfies failure compensation: Before expiration, Alice can exercise the option successfully, or if the exercise fails, she is compensated with the guarantee deposited by Bob.*

The proofs are included in the Appendix Section B.2.