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http://hdl.handle.net/10419/27828
  
Title:Interpolation of discount factors PDF Logo
Authors:Cremers, Heinz
Schwarz, Willi
Issue Date:1996
Series/Report no.:Arbeitsberichte der Hochschule für Bankwirtschaft 2
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:urn:nbn:de:101:1-2008070285
Document Type:Working Paper
Appears in Collections:Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management

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