Forex Automaton

Among the other LIBOR rates, the Danish Krone LIBOR is remarkable for its positive autocorrelations, peculiar and very strongly pronounced short-range pattern of the overnight interest rate, and the weakness of the correlation between different duration terms. Like the previous LIBOR predictability overviews, this document begins with historical LIBOR charts for the currency, continues with volatility analysis, and culminates with autocorrelations and correlations of logarithmic returns for various DKK LIBOR terms. As with many other currencies, the predictable patterns in DKK LIBOR evolve with loan duration term from short-range but strong and regular oscillation in the overnight through smooth waves in 3-month and into relative featurelessness of the 12-month LIBOR. Motivation for publishing this type of study on a forex trading system site has been outlined in the USD LIBOR analysis. Here I can only add that for a student of financial correlations, LIBOR is a nice real-life intuition-building tool, for the correlations are so strong you can learn to identidy features in the charts with features in the correlations visually.

LIBOR charts

The data used are from June 2003 and up to September 2008. 

The evolution of visual features with maturity here resembles that of other currencies, movements are sharp for the short-term LIBOR and smoother for the longer terms. This will be seen qunatitatively in the correlation plots. Unlike many other currencies, 12-month LIBOR is fairly "conservative" in creating fine structure features of its own; 3-month, 6-month or even 12-month terms can be used for judging the long range trend.