Semi-analytical pricing of options written on SOFR futures

In this paper, we propose a semi-analytical approach to pricing options on SOFR futures where the underlying SOFR follows a time-dependent CEV model. By definition, these options change their type at the beginning of the reference period: before this time, this is an American option written on a SOFR forward price as an underlying, and after this point, this is an arithmetic Asian option with an American style exercise written on the daily SOFR rates. We develop a new version of the GIT method a...