Interest Rate Manipulation Detection using Time Series Clustering Approach

TL;DR

This paper investigates interest rate manipulation detection by comparing LIBOR and SIBOR using time series clustering, revealing that LIBOR was manipulated while SIBOR was not, based on analysis from 2005 to 2011.

Contribution

It introduces a time series clustering approach to detect interest rate manipulation, providing a novel method for analyzing IBOR behaviors.

Findings

LIBOR shows signs of manipulation during 2005-2011.

SIBOR remained unaffected by manipulation.

Clustering effectively differentiates manipulated from non-manipulated rates.

Abstract

The Interbank Offered Rate is a vital benchmark interest rate in the financial markets of every country to which financial contracts are tied. In the light of the recent LIBOR manipulation incident, this paper seeks to address the fear that Interbank Offered Rate are entirely controlled by the bank. The paper will focus on the comparison between LIBOR and SIBOR especially with regards to the behavior of the interest rate with time. Because of the nature of IBORs, banks will naturally be submitting similar rates which should not differ excessively from the market as well as the other banks. We will compare the LIBOR and SIBOR from 2005 to 2011 with respect to the 1 month rates on an annual basis. We will present the result that the SIBOR is not manipulated like LIBOR.