Financial Risk Manager Part 1
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Which of the following criteria is most consistent?
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NNikitesh
A
MSE criterion
B
Akaike's information criterion
C
Schwarz information criterion
D
None of the above
Explanation:
The Schwarz Information Criterion (SIC) is considered the most consistent information criterion among the options provided. It has the greatest penalty factor for degrees of freedom, which helps prevent overfitting by penalizing model complexity more heavily than other criteria like Akaike's Information Criterion (AIC).
Key points:
- SIC (Schwarz Information Criterion): Also known as Bayesian Information Criterion (BIC), it imposes a stronger penalty on additional parameters than AIC.
- Consistency: SIC is consistent in model selection - as sample size increases, it correctly identifies the true model with probability approaching 1.
- Penalty structure: SIC penalty = k·ln(n) where k is number of parameters and n is sample size, while AIC penalty = 2k.
- MSE (Mean Squared Error): While useful for model evaluation, it doesn't have the same theoretical consistency properties for model selection.
Therefore, SIC is the most consistent criterion for model selection among the given options.
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