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FRM Part II · FRM Exam Part II · Advances in Artificial Intelligence: Implications for Capital Markets Activities

A surveillance team tests an AI model on 10,000 trading days, of which 200 contain true market abuse. The model flags 250 days, and 150 of these are true abuse. What are the model's precision and recall, respectively?

Precision is 60% because 150 of the 250 flagged days were genuine abuse. Recall is 75% because the model caught 150 of the 200 actual abuse days. Reversing the denominators would wrongly give 75% and 60%.

  1. A60% and 75%Correct
  2. B75% and 60%
  3. C60% and 1.5%
  4. D75% and 1.5%

Explanation

Precision = true positives / flagged = 150/250 = 60%. Recall = true positives / actual abuse = 150/200 = 75%. Swapping the two gives 75% and 60%, which is the common mistake; 1.5% divides by all 10,000 days.

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