Term structure is determined by a two-factor affine model (Vasicek). Using the monthly swap market data, we fit the model to match exactly the one-year and ten-year points along the swap curve each month. Once fitted to these points, we then identify how far off the fitted curve the other swap rates are.
Above a quote what I'm working with and trying to get my head around what are my steps and would appreciate any help.
Currently I'm able to do MLE estimation of short (1Y) and long (10Y) points, but I don't understand, how do I calibrate this to fit the initial curve. Without calibration, it is giving me very weird values for other maturities. Main tool I use is R, but really any code or good step-by-step example would help.