Re:Libor, long the most important number in finance, dies at 52
by fennecfoxen on Thursday January 20, 2022 @12:37PM
(#30012006)
That's not what it's measuring, that's how it's used.
Re:Libor, long the most important number in finance, dies at 52
by ChrisLomont on Thursday January 20, 2022 @12:54PM
(#30012222)
That's also what it measures, as measured by the people doing the estimation of creditworthiness, who are the experts in understand how to measure that value.
If anyone else was more accurate at this measurement, then they had arbitrage against those using the measure, giving those doing the initial measurement incentive to get it as right as is humanly possible, since they usually worked at places that use LIBOR to price things.
Since LIBOR underlied hundreds of trillions in assets, there are ample papers on all aspects of LIBOR, including those trying to see how well it was computed versus post outcomes.
It holds up well. https://scholar.google.com/scholar?hl=en&as_sdt=0%2C14&q=LIB...
LIBOR + bank's minimum interest rate + a rate based on creditworthiness = your offered interest rate
Planet Money recently had a really good episode on how some banks are deciding on a replacement rate: https://www.npr.org/2021/10/08/1044598674/libor-pains