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Systemic risk in energy derivative markets: a graph theory analysis

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  • Delphine Lautier

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)

  • Franck Raynaud

    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)

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    Abstract

    This article uses graph theory to provide novel evidence regarding market integration, a favorable condition for systemic risk to appear in. Relying on daily futures returns covering a 12-year period, we examine cross- and inter-market linkages, both within the commodity complex and between commodities and other financial assets. In such a high dimensional analysis, graph theory enables us to understand the dynamic behavior of our price system. We show that energy markets - as a whole - stand at the heart of this system. We also establish that crude oil is itself at the center of the energy complex. Further, we provide evidence that commodity markets have become more integrated over time.

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    File URL: http://halshs.archives-ouvertes.fr/docs/00/73/82/01/PDF/energy_journal_main_names.pdf
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    Bibliographic Info

    Paper provided by HAL in its series Post-Print with number halshs-00738201.

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    Date of creation: 2012
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    Publication status: Published, Energy Journal, 2012, 33, 6, 215-239
    Handle: RePEc:hal:journl:halshs-00738201

    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00738201
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    Related research

    Keywords: Systemic risk; Energy; Derivative markets; High dimensional analysis; Graph theory; Minimum spanning trees.;

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    1. Haigh, Michael S. & Bessler, David A., 2002. "Causality And Price Discovery: An Application Of Directed Acyclic Graphs," Working Papers 28588, University of Maryland, Department of Agricultural and Resource Economics.
    2. Lautier, Delphine, 2005. "Segmentation in the Crude Oil Futures Term Structure," Economics Papers from University Paris Dauphine 123456789/95, Paris Dauphine University.
    3. Adusei Jumah & Sohbet Karbuz & Gerhard Runstler, 1999. "Interest rate differentials, market integration, and the efficiency of commodity futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 9(1), pages 101-108.
    4. Robert S. Pindyck & Julio J. Rotemberg, 1988. "The Excess Co-Movement of Commodity Prices," NBER Working Papers 2671, National Bureau of Economic Research, Inc.
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