On numerical stability of recursive present value computation method

Details On numerical stability of recursive present value computation method On numerical stability of recursive present value computation method

2006-11-13

arxiv.org/abs/cs/0611049v2

Computer Science

Computational Engineering, Finance, and Science

6 pages, 2 tables

Scientific paper

We analyze numerical stability of a recursive computation scheme of present
value (PV) amd show that the absolute error increases exponentially for
positive discount rates. We show that reversing the direction of calculations
in the recurrence equation yields a robust PV computation routine.

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