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Entropy and Chaos-Based Modeling of Nonlinear Dependencies in Commodity Markets
Irina Georgescu1, Jani Kinnunen2
1Department of Economic Informatics and Cybernetics, Bucharest University of Economics, Calea Dorobanți, 010552 Bucharest, Romania.
None:
This study explores the nonlinear dynamics and interdependencies among major commodity markets-Gold, Oil, Natural Gas, and Silver-by employing advanced chaos theory and information-theoretic tools. Using daily data from 2020 to 2024, we estimate key complexity measures including Lyapunov exponents, correlation dimension, Shannon and Rényi entropy, and mutual information. We also apply the stochastic SO(2) Lie group method to model dynamic correlations, and wavelet coherence analysis to detect time-frequency co-movements. Our findings reveal evidence of low-dimensional deterministic chaos and time-varying nonlinear relationships, especially among pairs like Gold-Silver and Oil-Gas. These results highlight the importance of using nontraditional approaches to uncover hidden structure and co-movement dynamics in commodity markets, providing useful insights for portfolio diversification and systemic risk assessment.
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