linear interpolation:interest rates and discount factors

[Serge]

a relatively simple question here but can anyone tell me if there is any issue converting between interest rates and discount factors where one or the other has been derived using linear interpolation? I have an issue with putting interest rates and their equivalent discount factors side-by-side, interpolating between them and converting discount factors back to yields/rates. the error is relatively small but I am wondering if this is due to some convexity effect between the interest rates as opposed to the discount factors.
Thanks

 

[IntoDarkness]

its best to interpolate the forwards with some kind of spline, then convert it back to other rates

 

[Daniel Duffy]

a good place to start is to look up the several articles on yield curve construction by Pat Hagan and the late Graeme West.

The linear interpolation on log of the discount factor is popular. But the forward rates are not continuous.

These and other issues are discussed in "C# in Financial Markets" by Duffy and Germani 2013.

 

[pingu]

These and other issues are discussed in "C# in Financial Markets" by Duffy and Germani 2013.

nice plug

 

[Daniel Duffy]

nice plug

It's Friday

 

[Serge]

It's Friday

Daniel. Thanks for your reply. I am happy to purchase your book and have considered purchasing your book in the past as I have been looking for more quantitiative code outside of c++ . The only thing(s) that has made me reluctant are the poor reviews re coding samples and/or access. Obviously book reviews on the likes of Amazon are subjective but if there has been issues with code in the past have these been rectified and is the code from the book available for electronic purchasers of the book?

 

[Daniel Duffy]

All the code has been tested and runs and we have a site for users here

http://www.datasimfinancial.com/forum/viewforum.php?f=196&sid=ba3d180e747b16a5e1b84c74a0338481

We have an easy step-by-step pdf document which sets up everything and off you go. It sets up the dlls and libraries. If you don't follow the steps the projects don't compile.

Access to the source code is through to an email and we register you for access via a password.

It's to prevent piracy.

 

[yetanotherquant]

https://www.quantnet.com/threads/po...tarted-with-quantlib.18766/page-2#post-145559

 

[Daniel Duffy]

On QL and C++ see page 30 for a bunch of interpolators.