Explicit time discretization programming approach to risk modelling
Published: 2011
Author(s) Name: Anandadeep Mandal & Ruchi Sharma
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Abstract
In this paper we formulate an explicit time discretization model for modeling risk by
establishing an initial value problem as a function of time. The model is proved stable and
the scaled-stability regions can encapsulated the volatile macroeconomic condition
pertaining to financial risk. The model is extended to multistage schemes where we test for
convergence under higher-order difference equations. Further, for addressing advection
problems we have used Runge-Kutta method to propose a multistep model and have shown its
stability patterns against general and absolute stability conditions. The paper also provides
second-order and forth-order algorithm for computational programming of the models in
practice. We conclude by stating that explicit time discretization models are stable and
adequate for changing business environment.
Keywords: Explicit time discretization; Runge-Kutta Method; algorithms; computational
programming; risk modeling.
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