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FRM Part I · FRM Exam Part I · GARP Code of Conduct

A risk manager is preparing a model validation memo. Her analysis relies on a vendor's model whose key assumption she has not been able to verify. Which approach best reflects the GARP Code of Conduct?

She should disclose the unverified assumption and the limitations of the results. The GARP Code expects reasonable judgment and openness about limits in analysis so recipients are not misled. Overstating reliability, omitting the model, or relying on reputation alone would give an incomplete or misleading picture.

  1. APresent the results as fully reliable to avoid undermining confidence
  2. BOmit the vendor's model from the memo to keep it simple
  3. CRely on the vendor's reputation and state no caveats
  4. DDisclose the unverified assumption and the limitations of the results in the memoCorrect

Explanation

The Code requires members to exercise reasonable judgment and to disclose limitations and relevant facts so users are not misled. Hiding the unverified assumption or omitting the model would distort the memo's picture of reliability. Reputation does not replace disclosure.

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