Process Type refers to List of various types indicating the stochastic process followed by the respective simulated risk factor.
In all cases, the indicated stochastic process produces the future value of the referenced risk factor by applying the discretized form of its defining SDE on the initial value.
This is achieved by assuming all coefficients as being constant during each elementary time step.
For example, if the risk factor x is lognormally diffused according to dx = μxdt + σxdw, where μ, σ are constants, and the elementary time step is one week, i.e. dt = 1/52, then an initial value of x(0) within one week will evolve to x(1/52) = x(0) + μx(0)dt + σx(0)dw
This is a good approximation as long as the elementary step dt is small enough.
The size of the elementary step dt is controlled by the inputs Actual Horizon and the number of time steps in the simulation and can be done arbitrarily small by increasing the latter number.
Available Process Type types: