In the Cubic Splines Technique, Which of the Following Is

question 19

Multiple Choice

In the cubic splines technique, which of the following is a benefit of adding more knot points to the algorithm?

• A) It enhances the smoothness of the forward curve obtained from the fitted function.
• B) It makes implementation easier as the number of parameters increases.
• C) It increases flexibility in being able to fit a greater variety of shapes for the discount function.
• D) It enables fitting the curve to more bonds and allows incorporating illiquid bonds as well.

---

Definitions:

Empirical Measure

A method or metric that is based on observation or experience rather than theory or pure logic.

Causal Statement

A declaration that indicates a cause-and-effect relationship between two events or variables.

Positive Economics

A branch of economics that focuses on describing and explaining the economic world as it is, not as it should be.

Operation of Systems

The process of managing and executing the functions and activities of interconnected and interdependent components to achieve specified goals.