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2018 | nr 39 | 20
Tytuł artykułu

On the trade-offs in money market benchmarks' stabilisation

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We propose a theoretical stochastic set-up for a panel of contributors to a volume weighted raw money market index, which is the main contribution of this research. 'The hypothetical problems with: changes in the panel's composition as well as the irregu- larity of daily contributions may strongly influence the utility of a final benchmark to be used in medium and long term loan contracts, especially with retail clients. Our focus is on several classes of benchmarks' formulae that are derived from this raw index and allow for some confinement of the mentioned drawbacks while decreasing quality measured by other criteria (goodness of fit). The set of classes include: the geomet- ric time weights with different smoothing parameters and observation window's length used on the original raw index, stabilisation of the raw index in bands, rolling window volume weights rebalancing and finally the geometric time weights performed on log- transformed index (log-raw index is calculated from volume logarithms). The potential trade-offs in such a benchmark's stabilisation efforts are shown. (original abstract)
Opis fizyczny
  • D. Duffie, J.C. Stein, (2015) Reforming Libor and other financial market benchmarks, Journal of Economic Perspectives, 29, 191-212, 2015.
  • P. Ghandi, B. Golez, J. Jackwerth, A. Plazzi, (2015) Libor manipulation: Cui bono?, Available at, 2015.
  • A. Hirsa, (2012) Computational methods in finance, CRC Press, 2012.
  • IOSCO, (2013) Principles for financial benchmarks, final report, Available at, 2013.
  • P. Mielus, (2016) Financial market index reform dilemmas, Gospodarka Narodowa, 2016.
  • C.J. Willmott, K. Matsuura, (2005) Advantages of the mean absolute error (mae) over the root mean square error (rmse) in assessing average model performance, Climate Research, 30, 79-82, 2005.
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