Lending is associated with credit risk. Modelling the loss stochastically, the cost of credit risk is the expected loss. In credit business the probability that the debtor will default in payments within one year, often is the only reliable quantitative parameter. Modelling the time to default...

We show that the power of the KPSS-test against integration, as measured by divergence rates of the test statistic under the alternative, remains the same when residuals from an OLS-regression rather than true observations are used. The divergence rate is independent of the order of integration...

We show that tests for a break in the persistence of a time series in the classical I(0) - I(1) framework have serious size distortions when the actual data generating process exhibits long-range dependencies. We prove that the limiting distribution of a CUSUM of squares based test depends on...

Model risk as part of the operational risk is a serious problem for financial institutions. As the pricing of derivatives as well as the computation of the market or credit risk of an institution depend on statistical models the application of a wrong model can lead to a serious over- or...

In this paper, we propose Phillips-Perron type, semiparametric testing procedures to distinguish a unit root process from a mean-reverting exponential smooth transition autoregressive one. The limiting nonstandard distributions are derived under very general conditions and simulation evidence...

We show that specific nonlinear time series models such as SETAR, LSTAR, ESTAR and Markov switching which are common in econometric practice can hardly be distinguished from long memory by standard methods such as the GPH estimator for the memory parameter or linearity tests either general or...

In this paper the performance of different information criteria for simultaneous model class and lag order selection is evaluated using simulation studies. We focus on the ability of the criteria to distinguish linear and nonlinear models. In the simulation studies, we consider three different...

This paper provides a multivariate score-type test to distinguish between true and spurious long memory. The test is based on the weighted sum of the partial derivatives of the multivariate local Whittle likelihood function. This approach takes phase shifts in the multivariate spectrum into...

The accuracy of measuring credit risk directly decides on the interest on credit, which has to be paid when raising a credit, and the amount of capital to keep in reserve by a firm. The structural credit risk model proposed by Merton (1974) lays the groundwork for the assessment of a firm's...