Energy markets: crucial relationship between prices

Cristina Bencivenga, Giulia Sargenti and Rita L. D’Ecclesia
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Cristina Bencivenga: “La Sapienza” University of Rome, Department of Economic Theory and Quantitative Methods for Political Choices
Giulia Sargenti: “La Sapienza” University of Rome, Department of Economic Theory and Quantitative Methods for Political Choices
Rita L. D’Ecclesia: “La Sapienza” University of Rome, Department of Economic Theory and Quantitative Methods for Political Choices

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2010, pp 23-32 from Springer

Abstract: Abstract This study investigates the relationship between crude oil, natural gas and electricity prices. A possible integration may exist and it can be measured using a cointegration approach. The relationship between energy commodities may have several implications for the pricing of derivative products and for risk management purposes. Using daily price data for Brent crude oil, NBP UK natural gas and EEX electricity we analyse the short- and long-run relationship between these markets. An unconditional correlation analysis is performed to study the short-term relationship, which appears to be very unstable and dominated by noise. A long-run relationship is analysed using the Engle-Granger cointegration framework. Our results indicate that gas, oil and electricity markets are integrated. The framework used allows us to identify a short-run relationship.

Keywords: energy commodities; correlation; cointegation; market integration (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-88-470-1481-7_3

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DOI: 10.1007/978-88-470-1481-7_3

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