Explain the interpolation techniques

Question

Explain the interpolation techniques.

Answer 1

Finding the forward curve along with these properties amounts to selecting on a way of interpolating, ‘among the points,’ the ‘points’ meaning the constraints upon the integrals of the r function. Now here many proposed interpolation techniques given as:

• Linear within discount factors
• Linear within spot rates
• Linear within the logarithm of rates
• Piecewise linear continuous forwards
• Cubic splines
• Bessel cubic spline and
• Monotone-preserving cubic spline and also
• Quartic splines.