This paper has two purposes. First, to outline a general framework or methodology for fitting the forward curve to market data. Second, to report on and compare results from fitting forward curves using three particular functional forms: piece-wise constant forward rates, piece-wise linear zero rates, and piece-wise linear forward rates. The third is particularly interesting because it retains much of the simplicity and ease of use from the first two while solving a problem (large jumps in the instantaneous forward rates) exhibited by them. Results are reported for US dollar swap curves for October 1994 and June 1997.
Originally published 27 January 1998, updated 10 February 2004, available
here on the Close Mountain site and also at the Social Science Research Network (SSRN)