does anyone know how to use linear interpolation to find the rate for a missing date. for example, if i know the rate on June 13th is 3.2792 and then I know the rate on June 15th is 3.2659. whats the formula i use to find june 14th’s rate? i have a formula that says: Swap(A) = [Swap1 x (D2 - DA) + Swap2 x (DA - D1)] / (D2 - D1) where DA = tenor for missing swap rate D1 = tenor for swap rate just before missing swap rate D2 = tenor for swap rate just after missing swap rate Swap(N) = swap rate for tenor N. but i can only use this formula when im given a 1 year rate and a 2 year rate and i want to use linear interpolation to calculate a 1.5 year rate. does linear interpolation also work if i just want to find a missing date’s rate? thanks a lot!
Yes. In this case a “linear interpolation” is just an average.
one way (from PRM curriculum) is to weight each rate by the inverse distance from the desired date. e.g. jan 1: 2% jan 30: 4% you want jan 18 rate 2% x (30 - 18)/30 + 4% x (30 - 12)/30 = 3.2%
how bout: 2% + 18/30*(4%-2%) = 3.2%…that’s how i always do it… (i.e. pick the lower rate, add that rate to the fraction of the difference represented by the time period desired)
thanks guys
so in the case where i have just daily rates, i just use the average of the day before and the day after to interpolate. but how about if i have two days in a row missing? or what if the last possible date is missing so i wouldnt have a ratre for the day after? any ideas what to do then? thanks!
use the “forecast” function in excel to fill in blank spots…
you have 2 points, which make a line…
math too hard. i would just guess.
Can you please explain the method you used more, because it is the one I am looking for to calculate a linear interpolation excercise?