Vasicek calibration

[d.koutsomito]

Hello,

I am currently studying about Vasicek model and I am trying to understand how one can calibrate the model in order to fit to the reality. I now that in the 1-factor Vasicek model the dynamics of the SDE are constants. Moreover, for obtaining these values one way is to fit to the model the current zero coupon bond curve and find the parameters(dynamics). But, how this is possible? It will help if you indicated any tutorial or any other source that will help me become more familiarized.

Thank you in advance.

 

[IntoDarkness]

u need to calibrate to some term structure employing some type of error minimization technic
e.g. 1) libor - bba published short rates, eurodollar future, swap rates, etc.
or 2) market prices - cap, swaption (black scholes formula between vol and price)
or 3) time series of short rates...
option 3 is preferred as affine like model is best used with its time homogeneous char that help produce meaningful duation, convex, and vega for buyside

 

[d.koutsomito]

Thanks for your reply. Do you have any material to propose (paper, website, book) which has examples of these methods?

 

[Daniel Duffy]

Here's an article on this that might help.

http://www.sitmo.com/article/calibrating-the-ornstein-uhlenbeck-model/