Recently I read a paper (attached) that introduces a technique of using a mixed interpolation method that merges two different kind of interpolation (linear and some high degree spline form) to bootstrap a cero curve. The main argument is: "since instruments granularity decreases in the mid-long term, assumuming flat forwards rates becomes inconsistent because it would produce flat rates periods of more than a year. as a consequence, it becomes necessary to switch to another interpolation technique which is able to provide smooth forwards".
Would be great to hear any opinions on this idea............................
Regards,
Serving the Quantitative Finance Community
Mixed Interpolation method
- Attachments
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- SSRN-id2881445.pdf
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