Interpolation
The mathematical process used to obtain an unknown number whose value is in sequence between two known numbers within a series of numbers. For example, if the prices for 2-, 3-, and 5-year Treasury notes are known, the price for a 4-year Treasury note can be determined. Interpolated values are not always exact, but they are usually accurate enough for most investors. The process is commonly used for interpolating rates, discount factors and volatilities from their respective curves, but can also be used for any application that involves obtaining a continuous set of points from a discrete curve of data. Four methods are in use: linear, cubic spline, exponential and linear spot rate.