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The systemic risk of energy markets

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  • PIERRET, Diane

    (Université catholique de Louvain, ISBA, Belgium)

Abstract

This paper investigates the meaning of systemic risk in energy markets and proposes a methodology to measure it. Energy Systemic Risk is defined by the risk of an energy crisis raising the prices of all energy commodities with negative consequences for the real economy. Measures of the total cost (EnSysRISK) and the net impact (ΔMES) of an energy crisis on the rest of the economy are proposed. The measures are derived from the Marginal Expected Shortfall (MES) capturing the tail dependence between the asset and the energy market factor. The adapted MES accounts for causality and dynamic exposure to common latent factors. The methodology is applied to the European Energy Exchange and the DAX industrial index, where a minor decline in industrial productivity is observed from recent energy shocks.

Suggested Citation

  • PIERRET, Diane, 2013. "The systemic risk of energy markets," LIDAM Discussion Papers CORE 2013018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2013018
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    6. Körner, Marc-Fabian & Sedlmeir, Johannes & Weibelzahl, Martin & Fridgen, Gilbert & Heine, Moreen & Neumann, Christoph, 2022. "Systemic risks in electricity systems: A perspective on the potential of digital technologies," Energy Policy, Elsevier, vol. 164(C).
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    8. Olexandr Yemelyanov & Anastasiya Symak & Tetyana Petrushka & Roman Lesyk & Lilia Lesyk, 2018. "Evaluation of the Adaptability of the Ukrainian Economy to Changes in Prices for Energy Carriers and to Energy Market Risks," Energies, MDPI, vol. 11(12), pages 1-34, December.
    9. Gustave Laurent, 2015. "A New Regulatory Paradigm for Over-the-Counter Oil Forward Contracts," Economic Affairs, Wiley Blackwell, vol. 35(2), pages 299-305, June.
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    More about this item

    Keywords

    energy crisis; factor models; marginal expected shortfall; market integration;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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