LIBOR troubles: Anomalous movements detection based on maximum entropy

Aurelio Fernandez Bariviera, María T. Martín, Angelo Plastino and Victoria Vampa

Physica A: Statistical Mechanics and its Applications, 2016, vol. 449, issue C, 401-407

Abstract: According to the definition of the London Interbank Offered Rate (LIBOR), contributing banks should give fair estimates of their own borrowing costs in the interbank market. Between 2007 and 2009, several banks made inappropriate submissions of LIBOR, sometimes motivated by profit-seeking from their trading positions. In 2012, several newspapers’ articles began to cast doubt on LIBOR integrity, leading surveillance authorities to conduct investigations on banks’ behavior. Such procedures resulted in severe fines imposed to involved banks, who recognized their financial inappropriate conduct. In this paper, we uncover such unfair behavior by using a forecasting method based on the Maximum Entropy principle. Our results are robust against changes in parameter settings and could be of great help for market surveillance.

Keywords: Maximum Entropy; LIBOR manipulation; Interest rates (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Working Paper: LIBOR troubles: anomalous movements detection based on Maximum Entropy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:449:y:2016:i:c:p:401-407

DOI: 10.1016/j.physa.2016.01.005

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