Janos Benk

Janos Benk did his master's thesis at the HVB Institute for Mathematical Finance, TUM. He graduated from CSE/BGCE in 2008 and is now a Ph.D. student at the International Graduate School of Science and Engineering at the Chair for Scientific Computing, TUM (see his homepage).

Master's Thesis:
Calibration of the Das, Foresi, Balduzzi and Sundaram three-factor short rate model

This master thesis is about one specific short-rate model, the Das, Foresi, Balduzzi and Sundaram three-factor short-rate model. The literature states, that this model is able to fit different shapes of rate curves with the three factors contributing in different ways to the shape of the rate curve. We test different numerical methods to calculate the discount factors from the model parameters. Using the best method we fit in the model to different zero rate curves and we can confirm the fact, that the model fits well the different rate curve shapes.

We develop a Monte Carlo-based pricing method for this model and we fit the model parameters to different cap volatility curve and to swaption volatility surfaces. Due to the inaccuracy of the pricing function the fits are inaccurate in the case of the swaption surfaces, but in the case of the ATM cap curve we were able to reproduce the shapes of the curves and achieve acceptable fits.

Furthermore we present simultaneous fit to the cap curve and to the zero rate curve, and we also propose two methods to fit the model to historical time series. With the fitted parameters and with the same market price of risk functions, which the author used, we fit the parameters of the market price of risk to the current rate curve.