In the context of a Credit Network model, a Temporal Grid denotes the specification of
In the simplest case, future cashflows of credit asset and liabilities that are part of the credit network are considered at a set of given timepoints .
The modelling period spans the time interval from the current date (as-off date) till the end of the calculation period (e.g., expected life / longest tenor) of all credit assets and/or liabilities).
NB: For brevity we may drop the M index and refer to $T$ instead and similarly indicate a timepoint by its index k instead of .
All variables represented on the grid are either state or flux (flow) variables. State variables are associated (e.g represent state) with a single timepoint whereas flow variables are associated with a period .
Issues and Challenges
- When a temporal grid is selected to be coarse (e.g. annual) all input data must be appropriately mapped to timepoints/periods.