Systemic Risk in Market Microstructure of Crude Oil and Gasoline Futures Prices: A Hawkes Flocking Model Approach

TL;DR

This paper introduces the Hawkes flocking model to evaluate systemic risk in crude oil and gasoline futures markets, revealing asymmetric influences and their evolution over the past decade.

Contribution

The study develops a novel Hawkes flocking model to analyze systemic risk, incorporating endogeneity and interactivity in high-frequency market data.

Findings

WTI crude oil exhibits higher endogenous systemic risk than gasoline.

Gasoline has a consistently greater influence on WTI than vice versa.

The asymmetry in influence between markets has decreased over time.

Abstract

We propose the Hawkes flocking model that assesses systemic risk in high-frequency processes at the two perspectives -- endogeneity and interactivity. We examine the futures markets of WTI crude oil and gasoline for the past decade, and perform a comparative analysis with conditional value-at-risk as a benchmark measure. In terms of high-frequency structure, we derive the empirical findings. The endogenous systemic risk in WTI was significantly higher than that in gasoline, and the level at which gasoline affects WTI was constantly higher than in the opposite case. Moreover, although the relative influence's degree was asymmetric, its difference has gradually reduced.