ABSTRACT

This paper examines the empirical risk characteristics of European energy markets covering Crude Oil, Gas Oil, Natural Gas, coal, and electricity markets from ICE, EEX, and Nasdaq OMX in the period 2006 to 2012. Energy producers and consumers as well as financial institutions may have complex portfolios of long and short positions in these new markets, hence there is a need of assessing risk adequately. Despite all being energy carriers, commodities included in the study are quite different in terms of production technology, consumption flexibility, storage and transportation. As a consequence, European energy markets have very distinct features with different dynamics, correlation and risk characteristics that change over time. One should be very careful applying «standard models» from banks (risk metrics and historical simulation) for energy commodity portfolios that do not take into account these features.

Keywords: descriptive statistics, risk analysis, energy futures markets