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LIBOR troubles: anomalous movements detection based on Maximum Entropy

Aurelio F. Bariviera, M.T. Martin, A. Plastino, V. Vampa

posted on 19 August 2015

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

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