Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/27828
Authors: 
Cremers, Heinz
Schwarz, Willi
Year of Publication: 
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: 
Document Type: 
Working Paper

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