If the market prices of SOFR futures are obtained from CME, do we still need to compute convexity adjustments when computing the sensitivity of the IR future?
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1$\begingroup$ The sensitivity to what? Rates? No. An 3M SOFR interest rate future has a sensitivity of 25 USD per bp per contract. This is a static value. Or is it something else you are after? $\endgroup$– Attack68 ♦Aug 1 at 19:27
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$\begingroup$ @Attack68. i guess sensitivity to the NPV. You're right yes sensi to payoff is like what you described above. $\endgroup$– BenedictAug 2 at 5:18
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Short answer: you still need to compute for financing bias, and there will still be some nonlinearity to account for in the 1-month (but not the 3-month) since it uses arithmetic averaging instead of geometric averaging as in the case of the 3-month. But in any case, the adjustment amounts are likely smaller than with LIBOR/Eurodollars.
Long answer: see Chapter 6 of Huggins & Schaller's SOFR Futures & Options (Wiley Finance) (you can get 30% off by using CME's discount code).
