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FRM Part II · FRM Exam Part II · Credit Scoring and Rating

A risk manager monitors a deployed scorecard and finds a population stability index (PSI) of 0.32 between the development and current applicant score distributions. Which conclusion is most appropriate?

A PSI of 0.32 exceeds the usual 0.25 threshold, signalling a significant shift in the applicant population. The scorecard should be investigated and may need recalibration or redevelopment. PSI measures distributional change only, so it says nothing directly about improved discrimination or the exact change in defaults.

  1. AThe population has shifted significantly, so the model should be investigated and possibly redeveloped or recalibratedCorrect
  2. BThe population is stable, so no action is needed
  3. CThe model's discriminatory power has improved because the distribution changed
  4. DThe PSI proves the default rate has risen by 32%

Explanation

Common practice treats PSI below 0.10 as stable, 0.10-0.25 as a moderate shift, and above 0.25 as a significant shift. At 0.32, investigation is warranted. PSI measures distribution change, not discrimination or the default rate directly.

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