A Mechanism for LIBOR

Authors

Brian Coulter, Richard Ivey School of Business
Joel Shapiro, Saıd Business School
Peter Zimmerman, Saıd Business School

Document Type

Article

Publication Date

10-2017

Volume

22

Issue

2

Journal

Review of Finance

First Page

491

URL with Digital Object Identifier

https://doi.org/10.1093/rof/rfx045

Last Page

520

Abstract

The investigations into LIBOR have highlighted that it is subject to manipulation. We examine a new method for constructing LIBOR that produces an unbiased estimator of the true rate. LIBOR itself is based solely on transactions. We allow for fines when a bank’s transaction is different than a comparison rate, which depends on the set of transactions and non-manipulated rates elicited by a revealed preference mechanism. These non-manipulated rates will always be used in the fines, but transactions may not. We address how this approach applies to other financial benchmarks and how it works even in markets in which there are few transactions.

Notes

This is the author approved version of an article originally published in Review of Finance

Citation of this paper:

Brian Coulter, Joel Shapiro, Peter Zimmerman; A Mechanism for LIBOR, Review of Finance, Volume 22, Issue 2, 1 March 2018, Pages 491–520, https://doi.org/10.1093/rof/rfx045