A Research On The Internal And External Dependence Of Energy Futures Among China's Energy Markets

To fill in gaps of research on the internal and external dependence of energy futures among China's energy markets,this paper combines different GARCH models with static Copula functions and dynamic time-varying Copula functions to analyze the internal and external dependence of domestic energy futures markets using the data from October 9th,2013 to May 26th,2016.The data comes from Nan Hua futures index based on domestic energy futures,Standard&Poor's Goldman Sachs full yield index based on Brent crude oil futures and light crude oil futures and coal index released by InterContinental Exchange based on Richards Bay coal futures and Rotterdam coal futures.The empirical result shows that there exists tail dependence between domestic energy futures to different extent.Moreover,the structure of tail dependence between each pair of domestic energy futures is symmetrical.Whereas,when considering the tail dependence between domestic energy markets and international energy markets,the empirical result unexpectedly shows that domestic coal-related energy futures only shows weak lower tail dependence with two representative international coal futures.On the contrary,Asphalt futures shows strong lower and upper tail dependence with two representative international crude oil futures.Furthermore,the tail dependence among energy futures are dynamic if their tail dependence is evidently strong.Compared with traditional method,applying Monte Carlo simulation based on EGARCH-SJC Copula model in the value at risk estimation of coking coal futures,coke futures and equal-weighted portfolio may provide more accurate result and reveal true risk of risky assets.This is due to better modeling on the true distributions of each time series and their tail dependence.