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LIBOR’s Poker

44 Pages Posted: 28 Aug 2012 Last revised: 16 Feb 2017

Jiakai Chen

University of Hawaii

Date Written: February 12, 2017

Abstract

Recent LIBOR manipulation scandal inspired discussions of the proper design of survey-based benchmarks. I solve a version of the survey as a game of incomplete information in which the benchmark administrator is unaware of the distribution of private signals. I characterize a standard survey in which the expected benchmark bias is distribution-free and corrigible. I then study the LIBOR benchmarking as a particular case of standard survey. Banks’ reporting errors decrease with the panel size and the number of quotes used for calculation. The expected benchmark bias is no longer distribution-free under collusion or signaling, but embargo fixes this problem.

Keywords: LIBOR; Interbank lending; Benchmarking; Strategic reporting; Mechanism design

JEL Classification: D43, D44, D47, G10, G21

Suggested Citation

Chen, Jiakai, LIBOR’s Poker (February 12, 2017). Available at SSRN: https://ssrn.com/abstract=2136871 or http://dx.doi.org/10.2139/ssrn.2136871

Jiakai Chen (Contact Author)

University of Hawaii ( email )

Honolulu, HI 96822
United States

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