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The aim of the project Econom&Risk (Econometric Approaches for Risk Modelling) is to promote a better analysis of financial risk, not only under normal market conditions, but also in the context of financial crisis. The project is focused on two dimensions of financial risk: (i) market risk and (ii) liquidity risk. The measure of financial risk is one of the main research topics of financial econometrics. This extremely active domain of research has been initiated by the necessity for the banks to compute a risk measure, called the Value-at-Risk (VAR). Given their simplicity and generality, the VaR and the other risk measures for extreme risks, such as the expected shortfall, have revolutionized the management of financial risks and become a common language to compare the risk of different markets, different countries, different portfolios etc. Recent advances in time series analysis have led to the construction of new models, new estimation procedures and new validation methods for modelling volatility of financial markets. In this project, extensions of the previously mentioned developments are proposed in view of applications to the estimation and validation of risk measures. Besides, we will also consider the liquidity risk. Up until recently, the liquidity of financial assets has typically been viewed as a second-order consideration in the asset-management industry. Liquidity was frequently associated with simple transaction costs that impose little effect, temporary if any, on asset prices and whose shocks could be easily diversified away. Yet, the evidence, especially the recent liquidity crisis that started in August 2007, suggests that liquidity is now a primary concern. In this context, one of the goals of our research effort is to develop methods of identifying and predicting liquidity events, as well as to design trading strategies to hedge these types of risk. The project Econom&Risks gathers researchers with a strong background in the field of financial econometrics from three Universities and has four main objectives:

• to construct new statistical methodologies for estimating risk measures based on conditional moments;
• to propose semi-parametric methods for VaR estimation;
• to propose new backtesting procedures able to evaluate the accuracy and the validity of risk measures, especially for VaR forecasts;
• to contribute to the econometrics of liquidity risk.

An important element of the project will be the development of an interactive website devoted to the econometrics of financial risks that will allow the professional and the academic community to beneficiate from the results of our research. This website will be developed as a SaaS (Software as a Service) and will enable professional to replicate our methodologies (test-estimation techniques) on their own data in a very simple way, through an Internet service.