energy markets crucial relationship between prices

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1、Energymarkets:crucialrelationshipbetweenpricesCristinaBencivenga,GiuliaSargenti,andRitaL.D’EcclesiaAbstract.Thisstudyinvestigatestherelationshipbetweencrudeoil,naturalgasandelectricityprices.Apossibleintegrationmayexistanditcanbemeasuredusingacointegration

2、approach.Therelationshipbetweenenergycommoditiesmayhaveseveralimplicationsforthepricingofderivativeproductsandforriskmanagementpurposes.UsingdailypricedataforBrentcrudeoil,NBPUKnaturalgasandEEXelectricityweanalysetheshort-andlong-runrelationshipbetweenthes

3、emarkets.Anunconditionalcorrelationanalysisisperformedtostudytheshort-termrelationship,whichappearstobeveryunstableanddominatedbynoise.Along-runrelationshipisanalysedusingtheEngle-Grangercointegrationframework.Ourresultsindicatethatgas,oilandelectricitymar

4、ketsareintegrated.Theframeworkusedallowsustoidentifyashort-runrelationship.Keywords:energycommodities,correlation,cointegation,marketintegration1IntroductionEnergycommoditieshavebeenaleadingactorintheeconomicandfinancialsceneinthelastdecade.Thederegulationo

5、felectricityandgasmarketsinwesterncountriescausedaseriouschangeinthedynamicofelectricityandgaspricesandnecessitatedtheadoptionofadequateriskmanagementstrategies.Thecrudeoilmarkethasalsobeenalsoexperiencingseriouschangesoverthelastdecadecausedbyeconomicandp

6、oliticalfactors.Thederegulationofgasandelectricitymarketsshouldcause,amongotherthings,moreefficientpriceformationofthesecommodities.Howevertheirdependenceonoilpricesisstillcrucial.Ananalysisofhowthesecommoditiesarerelatedtoeachotherrepresentsamilestoneinthe

7、definitionofriskmeasurementandmanagementtools.Foryearsnaturalgasandrefinedpetroleumproductshavebeenusedasclosesubstitutesinpowergenerationandindustry.Asaconsequence,movementsofnaturalgaspriceshavegenerallytrackedthoseofcrudeoil.Thisbroughtacademicsandpractit

8、ionerstouseasimpleruleofthumbtorelatenaturalgaspricestocrudeoilpricesaccordingtowhichasimpledeterministicfunctionmaybeabletoexplaintherelationshipsbetweenthem(see,e.g.,[7]).Recentlythenumberoffacilitiesableto