On the trade-offs in money market benchmarks' stabilisation

Marcin Dec ()

No 2018-039, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: 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 geometric 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.

Keywords: financial market indices; interest rate benchmarks; compound Poisson process; index volatility reduction; transaction based benchmarks (search for similar items in EconPapers)
JEL-codes: E43 G12 G13 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2018-08
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/20.500.12182/1139 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2018039

Access Statistics for this paper

More papers in KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Dariusz Nojszewski ().