Modelling the South African Inter-Bank Interest Rate Market using a Log-Normal Rational Pricing Kernel Model

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.

Grantor

African Institute of Financial Markets and Risk Management

Year dc:date.issued

2019

Author dc:creator

• Hammond, Graeme

Advisors dc:contributor.advisor

• Taylor, David
• Mahomed, Obeid

• Mathematical Finance

Handle dc:identifier.uri

http://hdl.handle.net/11427/31423

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/31423