Interbank Offer Rate Research Articles

Retracted: Research on Interbank Offered Rate Based on Embedded Wireless Communication

Retracted: Research on Interbank Offered Rate Based on Embedded Wireless Communication

The Transition from Interbank Offered Rates to Risk-Free Rates: Evolution in Pricing Models for Interest Rate Derivatives

In this article, we review the transition from interbank offered rates (IBORs) to the new risk-free rates (RFRs) introduced as a result of the process for determining IBOR being discontinued. Focusing on the quantitative aspects of the transition, we describe the differences between the forward-looking rates used under the IBOR environment (both single- and dual-curve IBOR environments) and the backward-looking rates used under the RFR one. Furthermore, we analyze the pricing models for interest rate derivatives across such different frameworks: the single-curve IBOR rates environment (in force before the 2007–2009 credit crisis), the dual-curve IBOR rates environment (in force after the 2007–2009 credit crisis), and the new RFR environment (officially introduced starting January 1, 2022). In particular, we describe the evolution of pricing models for the most relevant plain-vanilla interest-rate derivatives: interest rate swaps, overnight indexed swaps, caplets/floorlets, and swaptions.

Retracted: Interbank Offered Rate Based on Artificial Intelligence Algorithm

Retracted: Interbank Offered Rate Based on Artificial Intelligence Algorithm

Identifying proxies for risk-free assets: Evidence from the zero-beta capital asset pricing model

This research offers the first analysis of whether gold, T-bills, Overnight Index Swaps (OIS) or Interbank Offered Rates (IBOR) can be used as proxy for the risk-free asset in the UK, US, China, Japan and India. Using Blacks (1972) Zero-Beta CAPM we apply Wald and Likelihood Ratio Tests to assess whether gold, T-bills, OIS or IBOR qualify as Zero-Beta or risk free assets against each company in FTSE 350, S&P 500, SSE 180, NIKKEI 225 and SENSEX. We find that gold is a proxy for the risk-free asset in the UK and China; T-bills are a proxy for risk-free assets in Japan and IBOR is a proxy for the risk-free rate in China. None qualify as risk free for the US market. According to our results, there is no universal risk-free asset for the UK, US, China, Japan and India.

A Study on the Effect of Macroeconomic Variables on Indian Mutual Funds

Indian financial markets have witnessed very high levels of volatility in recent months, with a sharp decline in the BSE-SENSEX from a peak of around 21,000 points to a nadir below 11,000 points, with as much as a 700-point fall on one single day. Indian economic conditions have also seemed to stagnate, with an overall slow-down in economic growth, along with the pressures of increasing crude oil prices and increasing inflation. In fact, the overall global scenario has also been quite bleak, especially with the onset of recession in the US. Mutual fund investments, which are generally considered to be less risky than other financial instruments such as shares and debentures, have also suffered in the general atmosphere of volatility.
 
 The present study investigates the effect of macroeconomic variables on mutual fund schemes, in terms of returns and volatility. The study uses the Granger causality test to analyze these effects. The results of these causality tests would identify the specific macroeconomic factors which affect the returns and volatility of particular mutual fund schemes, which, on the one hand, would enable fund managers to manage the risk profiles of their portfolios more effectively; and, on the other hand, would enable investors to understand the specific risk factors affecting their investments, so that they can take more informed investment decisions pertaining to mutual funds.
 
 The data to be used in the study were the weekly returns and volatilities of different macroeconomic variables, such as market returns (calculated from the BSE-SENSEX), USD/INR and EURO/INR exchange rates, interest rates (Mumbai Inter-Bank Offer rates), inflation rates, and crude oil prices, over the period October ‘06 - June ‘08. The weekly returns and volatilities of a sample of major mutual fund schemes over the same period would be considered for the analysis.

Research on Interbank Offered Rate Based on Embedded Wireless Communication

With the Wi-Fi (Wireless Fidelity) standard and the increase of wireless access points, wireless data communication based on 802.11 has become increasingly popular. Interest rate risk is a kind of financial risk. In essence, interest rate risk is caused by changes in the price or income of financial products caused by changes in interest rates. As the hot spot of the wireless network, the self-organizing network will inevitably become a development trend to realize voice communication on its market-oriented core interest rate; the ARIMA model is further proposed to improve the prediction accuracy and better fit the daily fluctuation of the Shibor overnight. The monthly average value of Shibor is predicted overnight, and monthly mean prediction of Shibor is overnight. Finally, the overnight Shibor decision-making system is established, and the forecasting model is integrated to guide the participants in the money market.

Intertemporal imitation behavior of interbank offered rate submissions

This paper addresses a problem that may damage the reliability of an interbank offered rate (IBOR) system. Using evidence from the Shanghai Interbank Offered Rate (SHIBOR), we show that some SHIBOR panel banks imitate peers’ quotes after observing them on the next business day. The strength of the intertemporal behavior can be measured by a “Signed Active-minus-Stationary (SAmS)” index, which significantly predicts SHIBOR changes. Moreover, we find that the consequences of the imitation behavior are not fully perceived and understood by the market, and, as a result, SHIBOR-linked derivatives are mispriced. Our findings suggest that regulators of a poll-based interest rate benchmark should pay attention to the intertemporal imitation of submissions, in addition to bad faith collusion. The SAmS index can be utilized in the quality control of panel bank submissions.

Enabling a holistic solution to London Interbank Offer Rate repapering

This paper examines the discontinuation of the interbank offered rates (IBOR) and explores how a holistic approach that utilises the right resources and processes for each step of preparing for the discontinuation can have a significant impact. At the end of 2021, IBOR is being discontinued (with the exception of certain US tenors that will discontinue in 2023), and with it will come a slew of changes in financial markets. Because of the discontinuation of IBOR and the necessary repapering process, there are a number of associated challenges that can arise, including matters related to compliance, data consistency and organisational alignment. This paper discusses the challenges associated with IBOR repapering as well as the issues that can and will arise from not being proactive in preparing for IBOR reform. Additionally, this paper discusses what goes into developing an effective workflow before it is enacted. Further, this paper takes a broader view on what the best practices look like for each step of the repapering process, including review, analysis, execution and engagement, as well as what an end-to-end repapering process will look like in 2021. As institutions prepare for the changes on the horizon, a smooth end-to-end repapering process is crucial as the financial markets brace for the discontinuation of IBOR, and it is important to look for ways to drive efficiencies, such as the utilisation of artificial intelligence (AI) technologies. For all parties impacted by the discontinuation of IBOR, this paper provides a detailed look on how to be prepared and what an efficient and effective preparation should look like from start to finish.

Prediction of Interbank Offered Rate Based on Time Series Model

This paper studies the prediction of interbank offered rate changes in each working day. Using the actual data of each working day of China’s interbank offered rate from 2007 to 2019, this paper sets up ARIMA, Prophet, grey model and MTGNN to study and verify the time series data, and make a comparison between these models. The limitation of this paper is that it does not consider the impact of macroeconomic characteristics but only considers the predict changes in time series. The results of this paper are expected to be helpful for bank management and interbank transaction decision making.

Capital Market Consequences of the Libor Scandal and Phaseout for Public Borrowers

The London Interbank Offer Rate (LIBOR), based on inputs from banks, is plausibly the most important set of reference interest rates in the world. Following the LIBOR rigging scandal and the post-2008 decline in interbank lending underpinning LIBOR, banks and regulators have agreed to sustain LIBOR only through the end of 2021, after which, LIBOR updates are likely to cease. In this paper, we use an event-based design to study the implications of the LIBOR scandal and phaseout (LSP) on capital markets, focusing on firms with U.S.-traded public debt. Using LSP events as exogenous shocks to the optimality of existing contracts, we provide causal evidence on the effects of the LSP on firms and their stakeholders. Our findings suggest that the consequences of the LSP, as measured by stock and bond returns, are immaterial for the average firm, but negative for firms with fewer outside options to renegotiate or repurchase debt (i.e., with credit ratings below investment grade or lower interest coverage ratios). These results suggest that the negative consequences of the LSP have mostly been borne by the shareholders and bondholders of borrowers with limited options to renegotiate or repurchase debt.

Is Your Organization Ready for the LIBOR Sunset?

It is expected that InterBank Offered Rates (IBOR) will cease to exist at the end of 2021. IBORs are interest rates constructed by banks based on estimates of borrowing costs between banking institutions. Three examples include LIBOR (London), HIBOR (Hong Kong), and TIBOR (Tokyo). After 2021, banks will no longer be encouraged by bank regulators to make IBOR submissions, thus precipitating the demise of the IBOR. Unfortunately, hundreds of trillions of dollars of loans and derivative instruments are based on IBOR indexes. As a result, many firms will have to amend or replace current loan agreements and hedging documents to account for the change. In this article, the authors provide a brief history of LIBOR. Then the authors consider the accounting impact of IBOR’s sunset under current and proposed US accounting standards and international accounting standards. Most important, the authors recommend that firms address the issue in the near future, rather than waiting until the IBOR sunsets at the end of 2021. TOPICS:CLOs, CDOs, and other structured credit, legal and regulatory issues for structured finance, financial crises and financial market history Key Findings • IBOR sunset has the potential to create significant financial reporting issues. • The financial reporting issues related to LIBOR sunset could impact businesses in many different industries. • Companies should start preparing now for the upcoming IBOR transition.

The Influence of Exchange Rate, International Interest Rate and Inflation Rate on Lending and Deposit Rate of Indonesia Banking Sector Through Reference Policy Rate as Intervening Variable

The determination of bank interest rates that consist of lending rate and deposit rate is a crucial decision for the bank business as a financial intermediary. The banks must take into account the underlying factors that influencing their interest rate determination. This research examines the influence of foreign factors and domestic factor on lending and deposit rate through a reference policy rate called BI 7-day (reverse) repo rate as an intervening variables. Foreign factors are represented by exchange rate Rupiah against USD and international interest rate called Singapore Interbank Offer Rate (SIBOR). Domestic factor is represented by inflation rate. BI 7-day (reverse) repo rate is determined by Bank Indonesia as a new reference rate for the banks to determine their lending and deposit rate. It must be noticed carefully by the banks because it shows the direction of monetary policy from Bank Indonesia to stabilize economy, especially inflation. Model of path analysis is applied to estimate the monthly series data from September 2016 to December 2018. The result shows that the exchange rate has a positive and significant influence on BI 7-day (reverse) repo rate. Inflation rate and SIBOR has negative and insignificant influence on BI 7-day (reverse) repo rate. Both lending rate and deposit rate are influenced positively and significantly by BI 7-day (reverse) repo rate but the influence on lending rate is stronger than on deposit rate. Simultaneously, all foreign and domestic factors influence significantly on lending rate and deposit rate. It can be concluded that BI 7-day (reverse) repo rate as a new reference policy rate has been transmitted well to the banking sector in the form of determination of lending and deposit rate.

Portfolio Selection and Optimization through Neural Networks and Markowitz Model: A Case of Pakistan Stock Exchange Listed Companies

This paper used artificial neural networks (ANNs) time series predictor for approximating returns of Pakistan Stock Exchange (PSX) listed 100 companies. These projected returns are then substituted into expected returns in the Markowitz’s Mean Variance (MV) portfolio Model. For comparison empirical data used is closing prices of PSX listed stocks, Karachi Inter Bank Offer Rates (KIBOR) as risk free rate and KSE-all share index as benchmark. The Portfolio returns are compared for two datasets by employing various constraints like budget, transaction costs, and turnover constraints. The value of portfolios is measured through Sharpe ratio and Information ratio. Both Sharpe and Information ratios support use of ANNs as return predictor and optimisation tool over simple MV model implemented for empirical data as well as predicted data. ANNs framework performed better in both Long and Short positions and its portfolio returns are significantly higher as compared with MV.

ANALISIS FAKTOR-FAKTOR YANG MEMPENGARUHI UTANG LUAR NEGERI INDONESIA

Debt management as a part of the Fiscal Policy is a consequence of national budget deficit. Nowadays, total Indonesian foreign debt is growing very significantly. The aims of this study are to know the effect of variable Budget Deficit, Exchange Rate, London Inter Bank Offered Rates (LIBOR), Payment of Foreign Debt, and Previous Foreign Debt to Foreign Debt in Indonesia.The methodology in this study employs ordinary least squares (OLS), and time series data from 1986 to 2015. The result shows that (1) the Budget Deficit, Exchange Rate, and Previous Foreign Debt have significant effect, the London Inter Bank Offered Rate (LIBOR) and Payment of Foreign Debt have not significant effect on Foreign Debt in Indonesia.

Keep It Simple - Notes on the Transition to New Interest Rate Benchmarks from a Quant Perspective

With the realization in the markets and the regulatory world that Interbank Offered Rates (IBORs) may not be as stable and robust as necessary to represent sustainable, global interest rate benchmarks, the search for alternatives has led to (secured or unsecured) overnight rates. The question of how term rates could be derived from these overnight rates - or whether they are necessary at all - has not been clarified yet. Several variants have been proposed. Nevertheless, with the first bond issuances on these overnight rates (notably, the SOFR-referencing bonds issued by Fannie Mae at the end of July) markets may opt for one of these variants and may forestall results devised by the various working groups on risk-free rates (RFRs) - or arguments as ours from the quant world.

The Impact of Interbank Offered Rate on the Exchange Rate of the Chinese Yuan Renminbi Against the Sterling Pound: Evidence from Libor and Shibor

United Kingdom, as the world’s fifth largest economy, maintains good cooperation relation with China in the area of economy and trade. As the world’s fourth largest foreign exchange trading currency, the exchange rate fluctuation of the sterling pound has an important economic impact on the world’s foreign exchange market and it also has a significant impact on the trade with China. There are many factors that influence the exchange rate. By using time series approach, this paper analyzes the impact of two main variables, Libor and Shibor, and five common economy variables, inflation rate, interest rate, balance of trade, GDP and money supply, on the change of the sterling pound exchange rate. The results of the empirical analysis show that five common factors have significant relation with exchange rate. For the two main variables, Libor has a strong correlation with the sterling pound exchange rate, but Shibor has no such relation. Meanwhile, this paper focuses on analyzing the possibility of arbitrage according to the empirical results. It was found that the model for the impact on exchange rate in this paper cannot predict future exchange rate. As a result, short-term arbitrage prediction cannot be made.

Risk and Uncertainty in the Medan-Binjai Toll Road Infrastructure Project, Indonesia Based on the Stochastic Analyzes

This paper demonstrates state of the arts stochastic risk analyzes in assisting decision-making processes in achieving the project objectives in terms of the estimating project costs under uncertainty. The objectives of this study were to; (i) analyze the feasibility of the Trans Sumatra toll road projects section of Medan-Binjai (25.46 km), Indonesia, and (ii) identify and quantify the toll road risk and uncertainty variables influencing the economic feasibility of the project using stochastic approach. This study identified that the risk variables in this study may include; Indonesia Certificate Bank (SBI), inflation, volume of traffic (vehicles), operation and maintenance (O&M) costs, construction costs, land accusation costs, Jakarta Inter-Bank Offer Rate (JIBOR), and design (EED/FED). The initial results of this study (Scenario 1), using concession period of a-35 years with an implementation of the initial tariff of class I vehicles (Rp. 750 / km) showed that the project was considered not financially feasible as 90% probability of the projected net present value (NPV) was negative at the range of Rp. -1.06 trillion to Rp. 2.57 trillion. The project would be financially feasibility after conducting mitigation processes for those the identified risks, such as; providing the government supports (GSs) as much as 40% of the total construction costs as well as land acquisition costs (Scenario 3). This scenario has resulted that there was 90% probability of the projected NPV would be positive at the range of Rp. 0.54 million to 1.894 million. The implementation of the stochastic risk analysis may assist the project managers comprehensively in developing decision-making processes in financing the toll road project.

Risk and Uncertainty in the Medan-Binjai Toll Road Infrastructure Project, Indonesia Based on the Stochastic Analyzes

This paper demonstrates state of the arts stochastic risk analyzes in assisting decision-making processes in achieving the project objectives in terms of the estimating project costs under uncertainty. The objectives of this study were to; (i) analyze the feasibility of the Trans Sumatra toll road projects section of Medan-Binjai (25.46 km), Indonesia, and (ii) identify and quantify the toll road risk and uncertainty variables influencing the economic feasibility of the project using stochastic approach. This study identified that the risk variables in this study may include; Indonesia Certificate Bank (SBI), inflation, volume of traffic (vehicles), operation and maintenance (O&M) costs, construction costs, land accusation costs, Jakarta Inter-Bank Offer Rate (JIBOR), and design (EED/FED). The initial results of this study (Scenario 1), using concession period of a-35 years with an implementation of the initial tariff of class I vehicles (Rp. 750 / km) showed that the project was considered not financially feasible as 90% probability of the projected net present value (NPV) was negative at the range of Rp. -1.06 trillion to Rp. 2.57 trillion. The project would be financially feasibility after conducting mitigation processes for those the identified risks, such as; providing the government supports (GSs) as much as 40% of the total construction costs as well as land acquisition costs (Scenario 3). This scenario has resulted that there was 90% probability of the projected NPV would be positive at the range of Rp. 0.54 million to 1.894 million. The implementation of the stochastic risk analysis may assist the project managers comprehensively in developing decision-making processes in financing the toll road project.

Liquidity Management by Islamic Banks in Pakistan: An Econometric Analysis

This paper investigates different liquidity management aspects of Islamic banking industry in Pakistan. Islamic banking liabilities (deposits) and assets models, with regard to liquidity management, have found the significant role of following variables: (a) returns on deposits, (b) returns on financing, (c) costs of banking operations, and (d) the Interbank rate, here Karachi Interbank Offer Rate (KIBOR). Islamic banking liquidity reserves model, however, recommends that Islamic banks need to consider following variables, while developing optimum liquidity reserves: (a) total Islamic financing, (b) returns on financing, and (c) KIBOR. Moreover, the resilience analysis of the Islamic banking industry carried out in the current study suggests that liquid instruments performed well historically in mitigating liquidity run conditions. Furthermore, forecasts made on the basis of Autoregressive Integrated Moving Average (ARIMA) models for the current study suggest that tier-2 liquid instruments would possibly be performing well in mitigating any future liquidity run conditions (up to 95% of deposits). However, in case of tier-1 liquid instruments, there is a possibility of liquidity mismatches when liquidity withdrawals exceed the limit of 55% of deposits. In conclusion, Islamic banking depositors, besides their religious motives of supporting Islamic banks, expect from their banks to earn profits and pay competitive returns on their deposits. Therefore, Islamic banks need to make prudent portfolio financing so as to pay competitive returns to their depositors.This paper investigates different liquidity management aspects of Islamic banking industry in Pakistan. Islamic banking liabilities (deposits) and assets models, with regard to liquidity management, have found the significant role of following variables: (a) returns on deposits, (b) returns on financing, (c) costs of banking operations, and (d) the Interbank rate, here Karachi Interbank Offer Rate (KIBOR). Islamic banking liquidity reserves model, however, recommends that Islamic banks need to consider following variables, while developing optimum liquidity reserves: (a) total Islamic financing, (b) returns on financing, and (c) KIBOR. Moreover, the resilience analysis of the Islamic banking industry carried out in the current study suggests that liquid instruments performed well historically in mitigating liquidity run conditions. Furthermore, forecasts made on the basis of Autoregressive Integrated Moving Average (ARIMA) models for the current study suggest that tier-2 liquid instruments would possibly be performing well in mitigating any future liquidity run conditions (up to 95% of deposits). However, in case of tier-1 liquid instruments, there is a possibility of liquidity mismatches when liquidity withdrawals exceed the limit of 55% of deposits. In conclusion, Islamic banking depositors, besides their religious motives of supporting Islamic banks, expect from their banks to earn profits and pay competitive returns on their deposits. Therefore, Islamic banks need to make prudent portfolio financing so as to pay competitive returns to their depositors.

Pricing of a European Call Option Under a Local Volatility Interbank Offered Rate Model

This research seeks to give insight on how advances in developed money markets can be reflected towards the establishment of derivatives markets in under developed and developing financial markets. The dynamics of the London interbank offered rate, for the developed financial market and the Kenyan interbank offered rate, for the developing financial markets, are compared. For the period between 2013-2015, both interest rates are found to have the same underlying dynamics. A European caplet is priced using the local volatility interbank offered rate model. The local volatility model is used as it captures the volatility smiles more efficiently in one sweep. Thereafter, the local volatility interbank offered rate model is formulated and used to price the European caplet for the developing markets.