Temporal Grid

From Open Risk Manual

Definition

In the context of a Credit Network model, a Temporal Grid denotes the specification of

Usage

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 t_k \in [T_0,T_M].

The modelling period spans the time interval from the current date (as-off date) T_0 till the end of the calculation period (e.g., expected life / longest tenor) T_M 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 t_k.

Grid Variables

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 t_k whereas flow variables are associated with a period [t_{k-1}, t_k].

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.

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