- Project Title: Mathematical and Statistical
Methods for Financial Modelling and Risk Management
- Short project description: This research
project deals with the mathematics of risk modeling and resource
management. The objective is to develop and implement new mathematical
and statistical tools for pricing derivatives, hedging risk exposures
and managing portfolios. The project studies two general themes:
(A) portfolio management and pricing of
(B) statistical modelling and inference for
financial time series.
- Project description: This research project
studies mathematical and statistical methods for analyzing financial
data and helping practitioners of risk modeling and resource
management. An important objective is to develop and implement new
mathematical and statistical tools for pricing derivatives, hedging
risk exposures and managing portfolios. Two general themes are covered:
(A) portfolio management and pricing of derivatives, (B) statistical
modelling and inference for financial time series.
The first theme covers three topics: (1) optimal portfolio design when
state variables follow mixed jump-diffusion processes; (2) option
valuation based on generalized models involving latent variables with
jump processes; (3) hedge fund strategies and portfolio allocation.
The second theme considers several problems related to the statistical
analysis of financial time series: (1) volatility modelling: realized
volatility methods, stochastic volatility with transaction time risk,
robust statistical inference in the presence of random volatility of
unknown form; (2) long memory models in finance: long memory in
volatility, long memory in continuous time arbitrage based asset
pricing; (3) structural modelling in finance: statistical inference on
overidentified models, inverse problems, weak instruments in finance;
(4) linear methods for nonlinear time series models; (5) statistical
assessment of asset pricing models; (6) mathematical statistical
modelling of energy markets.
Both research themes will lead to the development of software for
financial modelling and analysis in association with our industrial
Participants to the project include several well-known researchers in
mathematical finance, statistics and econometrics: R. Garcia, E.
Renault, N. Meddahi, B. Perron, R. Roy (Un. de Montréal), J.
Detemple (Boston University), L. Khalaf (Un. Laval) and M. Rindisbacher
(Un. of Toronto). The project will be pursued in association with the
Finance branch of CIRANO and its partners [AXA, Laurentian Bank of
Canada, Bank of Montreal, Caisse de dépôt et de placement
du Québec, National Bank of Canada, RBC, Bell Canada,
Hydro-Québec, Desjardins, Montreal Stock Exchange, the
Ministère des Finances (Québec), Raymond, Chabot, Grant,
Thornton, and the Institut de finance mathématique de
- Recent developments that are worth notice
include the following:
- During the year 2005-2006, Jean-Marie
Dufour received seven distinctions for his research work
partially supported by MITACS.
- Election as Fellow of the American
Statistical Association, 2005.
"For outstanding contributions to statistical methodology in
econometrics, exact distribution-free and parametric methods, time
series analysis, causality analysis, and statistical inference in
weakly identified models; and for service to the profession."
- The Marcel-Vincent Prize,
from Association francophone pour le savoir (Acfas), 2005, funded by
Bell Canada. For research in econometrics.
- The Konrad Adenauer Research Award,
from the Alexander von Humboldt Foundation (Germany), 2005.
"This award, established through the generosity of the Alexander von
Humboldt Foundation, is made to highly qualified Canadian scholars
whose research work (…) has earned international recognition and who
are among the group of leading scholars in their respective area of
- The Killam Prize 2006 for
Social Sciences, Killam Trust and Canada Council for the Arts. For
research in econometric methods in macroeconomics and finance.
Killam Prizes are "Canada's most distinguished annual awards for
outstanding career achievements in engineering, natural sciences,
humanities, social sciences and health sciences."
- A Fellowship from the John Simon
Guggenheim Memorial Foundation (U.S.A.) for 2006-2007. For
research in econometrics and statistics.
- Personality of the week La Presse
/ Radio-Canada ("Personnalité de la semaine La Presse /
Radio-Canada"), April 23, 2006. A full page article published by the
newspaper La Presse on April 23, 2006.
- Officer of the National Order of
Québec [Officier de l'Ordre national du Québec],
Government of Québec, 2006. The order will be conferred on June
"The Ordre national du Québec is the highest distinction
conferred by the Government of Québec. In this way, the Prime
Minister grants to remarkable personalities the title of Grand Officer,
Officer or Knight of the Order." This honour is conferred "for
outstanding achievements in most fields."
- In 2005, Silvia Gonçalves
was promoted Associate Professor in economics (econometrics) at the
Université de Montréal.
- Lynda Khalaf was promoted Full
Professor at the Department of Economics, Université de Laval.
- Benoit Perron has become an
Associate Editor of Empirical Economics and a member of the Scientific
Board of the Institut de finance mathématique (IFM2).
- Marcel Rindisbacher was
promoted Associate Professor at the Rotman School of Management,
University of Toronto.
- René Garcia was awarded the newly
created Hydro-Québec Chair in Integrated Risk Management and
Mathematical Finance on May 28, 2003 at the université de
- During the year 2002-2003, Jean-Marie Dufour
was President of the Canadian Economics Association. On May 31, 2003,
in Ottawa, he gave his Presidential address on statistical methods for
economic and financial analysis. The title of his talk was: “Identification,
weak instruments and statistical inference in econometrics” (slides).
- Éric Renault was awarded on May 14,
2003, the Marcel Dagenais Prize for excellence in research by the
Société canadiene de science économique. The
previous recipent of this prize (which is awarded only once every three
years) was also awarded to a member of our team (Jean-Marie Dufour).
- Éric Renault was awarded the Canada
Research Chair in Financial Econometrics at the Université of
Montreal. The new chair’s objective is to advance the study of
financial econometrics and develop innovative applications for risk
management, asset pricing and the economics of uncertainty associated
with a number of technological issues. This research will greatly
benefit banking regulators and researchers of financial institutions
and markets who are challenged by increasingly complex issues related
to risk management and financial markets or derivative assets.
- As holder of the Canada Resarch Chair in
Econometrics (since 2001), Jean-Marie Dufour has obtained a
geant from the Canada Research Foundation for starting a “Mathematical
Methods and Financial Econometrics Laboratory” based at CIRANO, which
will be used for research in mathematical finance and financial
- René Garcia was nominated
Scientific Director of CIRANO.
- The new Journal of Financial Econometrics
just came out! This new journal focuses on financial econometrics, a
field that has become one of the most active areas of research in
econometrics and is a speciality shared by many CIRANO researchers. It
aims at reflecting and advancing the relationship between econometrics
and finance, both at the methodological and at the empirical levels.
More precisely, the statistical issues linked to the various aspects of
asset pricing and risk management represent its core focus. René
Garcia and Éric Renault are the editors-in-chief of the Journal.
The Journal itself is actively managed from CIRANO’s offices. In the
spirit of active transfer and liaison, both key CIRANO goals, the
Journal also features a Practitioners' Corner. This section emphasizes
the practical side of each issue's content and places the articles
within a broader perspective. The Journal of Financial Econometrics's
electronic version now has its own Web site with the Oxford
- The Finance group of CIRANO is proud to
announce its partnership with the Professional Risk Manager’s
International Association (PRMIA) which has launched its new regional
Montreal Chapter a few months ago. PRMIA is a non-profit global
association with the mission to provide a free and open forum for the
promotion of sound risk management standards and practices globally.
Its objectives include: connecting practitioners, researchers, students
and others interested in the field of risk management; driving the
integration of practice and theory and certifying the credentials of
risk managers with the globally recognized PRMIA Professional Risk
Manager certification. CIRANO and PRMIA make excellent partners as they
both promote a better communication and a more efficient transfer of
knowledge between researchers and companies. As David Stréliski,
regional director of PRMIA Montreal, puts it: “This association is an
important step towards establishing a common and accessible forum to
bring together academics and professionals, theoreticians and
practitioners, around today’s key questions in finance, financial
engineering and risk management. By working together efficiently, we
will be able to establish Montreal as an excellence center for the
development and application of innovative ideas in these fields.” Among
its activities, PRMIA will be organizing a Career Day focused Career
Perspectives in Finance, Risk Management and Financial Engineering.
This event will allow professionals in these fields to give students a
description of their typical activities in their respective
professions. More information on PRMIA’s activities is available on their