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A model validation team at a bank is backtesting the bank's VaR model. In preparation for the backtest, one of the team members expresses a concern that the validation process could result in the team committing a Type I error or a Type II error and discusses the characteristics of these errors with the team. Which of the following is correct regarding Type I and Type II errors?
A
The probability of committing a Type II error decreases when the sample size increases and the level of significance is held constant.
B
A backtest is considered statistically powerful if it minimizes the probability of committing a Type II error regardless of the probability of committing a Type I error.
C
A Type I error is committed when an incorrectly specified model is accepted.
D
A Type II error is committed when a correctly specified model is rejected.