test T You have estimated parameters that make a model"fit best". The natural question is how does it fit? It is natural to look at pricing errors and see if they are bi The J asks whether they are big by statistical method. If it is big the model is rejected The test is T=minlE(b)s"gT (6)x(# of moments-#of parameters)test • You have estimated parameters that make a model “fit best”. The natural question is how does it fit? • It is natural to look at pricing errors and see if they are “big”. • The asks whether they are big by statistical method. If it is big, the model is “rejected”. • The test is T J T J { } [ ( )' ( )] ~ (# # ) 1 2 TJ T min g b S g b of moments of parameters T T b T = − − χ