When perturbing a key rate in order to assess sensitivity of portfolio value, what sort of interpolation is standard? A book I am looking at says linear, but this seems pretty unrealistic to me--and of real significance for longer durated portfolios or shorter term perturbations. Anyone familiar with literature on the matter? Thanks.

  • $\begingroup$ Please add a link or a reference. $\endgroup$ – user16651 Jul 4 '16 at 12:56

If I have understand right what you are looking for, I think that Nelson–Siegel Model can halp you, google it.

Hear some readng: Nelson-Siegel model


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