FRM Part II · FRM Exam Part II · Supervisory Guidance on Model Risk Management
Under supervisory guidance, which set of activities best represents the core elements of comprehensive model validation?
The core validation elements are evaluation of conceptual soundness, ongoing monitoring, and outcomes analysis. Together they test the model's design and theory, confirm it keeps performing as intended over time, and compare model outputs with actual results, for example through backtesting.
- AEvaluation of conceptual soundness, ongoing monitoring, and outcomes analysisCorrect
- BCode optimisation, user training, and vendor selection
- CAnnual budget review, headcount planning, and software licensing checks
- DSensitivity analysis of the business plan, audit sign-off, and pricing review
Explanation
SR 11-7 identifies three core elements: evaluation of conceptual soundness (including developmental evidence), ongoing monitoring (including process verification and benchmarking), and outcomes analysis (including backtesting). The other options list administrative or unrelated tasks.
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