LIBOR Troubles: Anomalous Movements Detection Based on Maximum Entropy

Physica A: Statistical Mechanics and its Applications. Volume 449, pages 401-407

13 Pages Posted: 29 Apr 2016

See all articles by Aurelio F. Bariviera

Aurelio F. Bariviera

Rovira i Virgili University - Department of Business

María T. Martín

Universidad Nacional de La Plata

Angelo Plastino

Universidad Nacional de La Plata

Victoria Vampa

Universidad Nacional de La Plata

Date Written: April 27, 2016

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

JEL Classification: E43, E47, C65

Suggested Citation

Bariviera, Aurelio F. and Martín, María T. and Plastino, Angelo and Vampa, Victoria, LIBOR Troubles: Anomalous Movements Detection Based on Maximum Entropy (April 27, 2016). Physica A: Statistical Mechanics and its Applications. Volume 449, pages 401-407, Available at SSRN: https://ssrn.com/abstract=2771182

Aurelio F. Bariviera (Contact Author)

Rovira i Virgili University - Department of Business ( email )

Av. Universitat, 1
Reus, Tarragona 43204
Spain
+34 977759833 (Phone)
+34 977759810 (Fax)

HOME PAGE: http://www.aureliofernandez.net

María T. Martín

Universidad Nacional de La Plata ( email )

7 Nº 776
Buenos Aires, BA 1900
Argentina

Angelo Plastino

Universidad Nacional de La Plata ( email )

7 Nº 776
Buenos Aires, BA 1900
Argentina

Victoria Vampa

Universidad Nacional de La Plata ( email )

7 Nº 776
Buenos Aires, BA 1900
Argentina

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