Dependence Structure between World Crude Oil Prices: Evidence from NYMEX, ICE, and DME Markets

T. Kiatmanaroch, S. Sriboonchitta

Abstract

This paper examines the dependence structure between world crudeoil prices using the D-vine copula based GARCH model to analyze three randomvariables, namely, Light crude futures 1-Pos (NYMEX), Brent crude futures 1-Pos (ICE), and Oman crude futures 1-Pos (DME). We nd that NYMEX{ICE,NYMEX{DME, and ICE{DME have relatively strong dependence. In addition,we nd the evidences for asymmetric tail dependence in each pair with the valuesof upper tail and lower tail dependences of three pair-copulas as being quite closeto each other. Therefore, our ndings support the "one great pool" hypothesis.Moreover, the results from the D-vine copula model indicate that the ICE is animportant variable that governs the interactions in the dependence structure be-tween the NYMEX and the DME. In other words, the change in the oil price ofthe ICE will impact quite signicantly the prices of the NYMEX and the DME.