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Part I
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Quantitative Analysis
Quantitative Analysis
Medium
An analyst compares two GARCH models for daily equity index returns using 1,000 observations. Model A (3 parameters) has a log-likelihood of -1,380. Model B (5 parameters) has a log-likelihood of -1,376. Based on the BIC, which model is preferred?
A
Model A, because BIC penalizes the extra parameters more than the likelihood improvement justifies
B
Model B, because the higher likelihood outweighs the BIC penalty
C
Cannot determine without AIC values
D
Model B, because it has the higher log-likelihood regardless of parameterization
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Tags
#bic
#model-selection
#garch
#information-criteria
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FRM Part I — Quantitative Analysis Practice Question | AcadiFi | AcadiFi