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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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    $\begingroup$ 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, 2023 at 19:27
  • $\begingroup$ @Attack68. i guess sensitivity to the NPV. You're right yes sensi to payoff is like what you described above. $\endgroup$
    – Benedict
    Aug 2, 2023 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).

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