This dissertation examines the performance of two log-normal rational pricing kernel models and their calibration to the South African Inter-bank interest rate market. We investigate using Monte-Carlo simulation to price caps, floors and swaptions. Model-performance for both models was tested on single-strikes and entire volatility surfaces. Our results show that a one-factor model cannot reproduce the volatility smile present in the caps/floor market but can reproduce the at-the money swaption volatility surface. The two-factor model produces a better calibration to the volatility smile and captures most of the characteristics of the volatility surface.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/31423 |
| Date | 02 March 2020 |
| Creators | Hammond, Graeme |
| Contributors | Taylor, David, Mahomed, Obeid |
| Publisher | Faculty of Commerce, African Institute of Financial Markets and Risk Management |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, MPhil |
| Format | application/pdf |
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