2020/05/28 by Jherek Healy, Healy, Jherek
Engineering · #Advanced Numerical Analysis Techniques #Computational Finance (q-fin.CP) #FOS: Economics and business #Pricing of Securities (q-fin.PR)
paper · pdf · doi:10.48550/arxiv.2005.13890
openalex publication_date 2020/05/28 · openalex created_date 2022/07/26 · openalex updated_date 2026/07/28
The traditional way of building a yield curve is to choose an interpolation\non discount factors, implied by the market tradable instruments. Since then,\nconstructions based on specific interpolations of the forward rates have become\nthe trend. We show here that some popular interpolation methods on the forward\nrates correspond exactly to classical interpolation methods on discount\nfactors. This paper also aims at clarifying the differences between\ninterpolations in terms of discount factors, instantaneous forward rates,\ndiscrete forward rates, and constant period forward rates.\n