Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/27828 
Year of Publication: 
1996
Series/Report no.: 
Arbeitsberichte der Hochschule für Bankwirtschaft No. 2
Publisher: 
Hochschule für Bankwirtschaft (HfB), Frankfurt a. M.
Abstract: 
This paper deals with the problem of interpolation of discount factors between time buckets. The problem occurs when price and interest rate data of a market segment are assigned to discrete time buckets. A simple criterion is developed in order to identify arbitrage-free robust interpolation methods. Methods closely examined include linear, exponential and weighted exponential interpolation. Weighted exponential interpolation, a method still preferred by some banks and also offered by commercial software vendors, creates several problems and therefore makes simple exponential interpolation a more logical choice. Linear interpolation provides a good approximation of exponential interpolation for a sufficiently dense time grid.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
112.76 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.