Systemic Risk in Energy Derivative Markets: A Graph-Theory Analysis
35 Pages Posted: 28 Mar 2010 Last revised: 2 Nov 2014
Date Written: July 5, 2011
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: Suggested Citation