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

20 Pages Posted: 21 Mar 2012

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: March 18, 2012

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.

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

Suggested Citation

Lautier, Delphine and Raynaud, Franck, Systemic Risk in Energy Derivative Markets: A Graph-Theory Analysis (March 18, 2012). USAEE Working Paper, Available at SSRN: https://ssrn.com/abstract=2025641 or http://dx.doi.org/10.2139/ssrn.2025641

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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