Interpolation

Interpolation of LGD for intermediate periods follows a linear interpolation method. Initially, the LGD of the current date, provided as the 0th period LGD, is considered. If there is no LGD against the 0th period, then the 1st-period LGD is made applicable to the 0th period. Then the LGD for the first period is taken into consideration and then the values are interpolated for the intermediate periods. The LGD for the first period applies to the last bucket of the first period and the LGD value for the second period applies to the last bucket of the second period. By using the linear interpolation technique, the LGD values are increased linearly from the 0th bucket to the last bucket of the first period and then further to the last bucket of the second period, and so on.