Robust Benchmark Design

Darrell Duffie and Piotr Dworczak

Research Papers from Stanford University, Graduate School of Business

Abstract: Recent scandals over the manipulation of LIBOR and foreign exchange benchmarks have spurred policy discussions of the appropriate design of financial benchmarks. We solve a version of the problem faced by a financial benchmark administrator. Acting as a mechanism designer, the benchmark administrator constructs a "fixing," meaning an estimator of a market value or reference rate based on transactions or other submission data. The data are generated by agents whose profits depend on the realization of the estimator (the benchmark fixing). Agents can misreport, or trade at distorted prices, in order to manipulate the fixing. We characterize the best linear unbiased benchmark fixing.

JEL-codes: D82 G12 G14 G18 G21 G23 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-mfd
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Citations: View citations in EconPapers (14)

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Journal Article: Robust benchmark design (2021)
Working Paper: Robust Benchmark Design (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3175

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