Linear interpolation - Financial definition
Financial acronyms
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Concise definition of the term linear interpolation
Linear interpolation is a method used to determine the value of a point on a curve by calculating a weighted average between the values of two known points located on the left and the right. This method considers that the point to be calculated is located on a straight line which connects the two points.
Comprehensive definition of the term linear interpolation
Amongst various methods of interpolation, linear interpolation is the simplest to calculate. The downside of its simplicity is that it is suffering from a certain degree of imprecision, given its underlying assumption that the two surrounding points are connected by a straight line, which, in reality, is rarely the case. Nonetheless, linear interpolation is a widely used technique in financial calculations.