Since the seminal work of Vasicek [1977] there was a great development in the field of interest rate models. However, the research on practical implementation and in particular on predictive abilities of interest rate models does not hold pace with the development of new models. My thesis intends to fill some parts of this research gap. It develops practical implementations of the Longstaff-Schwartz and LIBOR market models and conducts an empirical comparison of these models, based on interest rate cap volatility market data. For the Longstaff-Schwartz two-factor model, two different calibration approaches are presented. The so-called implied calibration approach is moreover used to test the in-sample pricing accuracy of the model. The LIBOR market model is implemented using different parameterizations of instantaneous volatility and correlation. All parameteriza- tions are tested and empirically investigated regarding their in-sample pricing accuracy. Moreover, the thesis conducts an empirical comparison of the two models, regarding the out-of-sample pricing accuracy. The goal is to test the predictive abilities of the models, using one and five day lagged parameters. Attention is turned to the performance of the models in pre-crisis, crisis and post-crisis environments (2006-2011). Based on the given dataset, both models exhibit a good in-sample pricing accuracy. However, based on the calibration approach chosen for this thesis, the Longstaff-Schwartz model shows critical parameter stability and consequently poor out-of-sample predictive abilities. In contrast, the LIBOR market model exhibits promising predictive abilities.      «

Since the seminal work of Vasicek [1977] there was a great development in the field of interest rate models. However, the research on practical implementation and in particular on predictive abilities of interest rate models does not hold pace with the development of new models. My thesis intends to fill some parts of this research gap. It develops practical implementations of the Longstaff-Schwartz and LIBOR market models and conducts an empirical comparison of these models, based on interest r...     »