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The systemic risk of energy markets

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  • PIERRET, Diane

    (Université catholique de Louvain, ISBA, Belgium)

Abstract

This paper investigates the meaning of systemic risk in energy markets and proposes a methodology to measure it. Energy Systemic Risk is defined by the risk of an energy crisis raising the prices of all energy commodities with negative consequences for the real economy. Measures of the total cost (EnSysRISK) and the net impact (ΔMES) of an energy crisis on the rest of the economy are proposed. The measures are derived from the Marginal Expected Shortfall (MES) capturing the tail dependence between the asset and the energy market factor. The adapted MES accounts for causality and dynamic exposure to common latent factors. The methodology is applied to the European Energy Exchange and the DAX industrial index, where a minor decline in industrial productivity is observed from recent energy shocks.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013018.

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Date of creation: 17 May 2013
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Handle: RePEc:cor:louvco:2013018

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Keywords: energy crisis; factor models; marginal expected shortfall; market integration;

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