Stable Interpolation for the Yield Curve
15 Pages Posted: 14 Nov 2012 Last revised: 9 Aug 2015
Date Written: July 1, 2013
We study several interpolation schemes that are adequate for the yield curve construction, and pay attention to their stability under sequential and parallel perturbations. It is found that Hagan and West monotone convex interpolation, tension splines and some monotone Hermite spline don’t always create stable yield curves. A specific monotone Hermite spline interpolation is however stable.
Keywords: yield curve, finance
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