We develop a Wald type test to distinguish between long memory and ESTARnonlinearity by using a directed-Wald statistic to overcome the problem of restricted parametersunder the alternative. The test is derived from two basic model specificationswhere the first is the standard model based on an...

This paper analyzes and quantifies the idea of model risk in the environment of internal modelbuilding. We define various types of model risk including estimation risk, model risk in distributionand model risk in functional form. By the quantification of these concepts we analyzethe impact of...