Computing maximally smooth forward rate curves for coupon bonds: An iterative piecewise quartic polynomial interpolation method
We present a simple and fast iterative, linear algorithm for simultaneously stripping the coupon payments from and smoothing the yield curve of the term structure of interest rates. The method minimizes pricing errors, constrains initial and terminal conditions of the curves and produces maximally smooth forward rate curves.
|Date of creation:||Aug 2011|
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- Patrick Hagan & Graeme West, 2006. "Interpolation Methods for Curve Construction," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(2), pages 89-129.
- Mark Fisher, 2004. "Modeling the term structure of interest rates: an introduction," Economic Review, Federal Reserve Bank of Atlanta, issue Q 3, pages 41-62.
- Jordan, James V. & Mansi, Sattar A., 2003. "Term structure estimation from on-the-run Treasuries," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1487-1509, August.
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