Dealer Polling in the Presence of Possibly Noisy Reporting

25 Pages Posted: 11 Sep 1998

See all articles by Jeremy Berkowitz

Jeremy Berkowitz

University of Houston - Department of Finance

Date Written: August 1998

Abstract

The value of a vast array of financial assets are functions of rates or prices determined in OTC, interbank or other off-exchange markets. In order to price such derivative assets, underlying rate and price indexes are routinely sampled and estimated. To guard against misreporting, whether unintentional or for market manipulation, many standard contracts utilize a technique known as trimmed-means. This paper points out that this polling problem falls within the statistical framework of robust estimation. Intuitive criteria for choosing among robust valuation procedures are discussed. In particular, the approach taken is to minimize the worst-case scenario arising from a false report. The finite sample performance of the procedures which qualify, the trimmed-mean and the Huber-estimator, are examined in a set of simulation experiments.

JEL Classification: G10, C40

Suggested Citation

Berkowitz, Jeremy, Dealer Polling in the Presence of Possibly Noisy Reporting (August 1998). Available at SSRN: https://ssrn.com/abstract=121650 or http://dx.doi.org/10.2139/ssrn.121650

Jeremy Berkowitz (Contact Author)

University of Houston - Department of Finance ( email )

Houston, TX 77204
United States

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