Systemic Risk in Energy Derivative Markets: A Graph-Theory Analysis

35 Pages Posted: 28 Mar 2010 Last revised: 2 Nov 2014

See all articles by Delphine Lautier

Delphine Lautier

University Paris Dauphine

Franck Raynaud

Lausanne University, Swiss Institute of Bioinformatics

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Date Written: July 5, 2011

Abstract

This article uses graph theory to provide novel evidence regarding market integration, a necessary condition for systemic risk to appear. 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, the graph theory enables us to understand the dynamic behaviour of our prices 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. Finally, we provide evidence that commodity are becoming more integrated over time.

Keywords: Integration, Systemic Risk, Energy, Derivatives, Graph Theory, Minimum Spanning Trees

Suggested Citation

Lautier, Delphine and Raynaud, Franck, Systemic Risk in Energy Derivative Markets: A Graph-Theory Analysis (July 5, 2011). Available at SSRN: https://ssrn.com/abstract=1579629 or http://dx.doi.org/10.2139/ssrn.1579629

Delphine Lautier (Contact Author)

University Paris Dauphine ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

Franck Raynaud

Lausanne University, Swiss Institute of Bioinformatics ( email )

bugnon 27
Lausanne, 1011
Switzerland

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