Pricing swaptions and zero-coupon futures options under the discrete-time arbitrage-free Nelson–Siegel model

The paper outlines pricing procedures for several interest rate derivatives under the discrete-time arbitrage-free Nelson–Siegel (DTAFNS) model of Eghbalzadeh et al. (The discrete-time arbitrage-free Nelson–Siegel model: a closed-form solution and applications to mixed funds representation, 2022). Derivatives considered include swaptions, zero-coupon futures, and options on such futures. Formulas for expected excess returns are also provided for options on futures. Whereas swaption pricing relies on Monte-Carlo simulation, closed-form formulas are obtained for all other derivatives.