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FRM Part II · FRM Exam Part II · Supervisory Guidance on Model Risk Management

Which element is most important for a bank's model inventory to support aggregate model risk management that includes vendor models?

A comprehensive inventory of every model in use, including vendor models, recording purpose, ownership, limitations, dependencies and validation status best supports aggregate model risk management. Partial inventories or contract lists prevent the firm from seeing shared dependencies and prioritizing validation.

  1. AOnly models developed in-house, to keep the inventory focused
  2. BA comprehensive listing of all models in use, including vendor models, with purpose, owner, limitations, dependencies and validation statusCorrect
  3. COnly models rated high risk by their developers
  4. DA list of model names and vendor contract expiry dates

Explanation

Guidance expects a comprehensive inventory covering all models in use, including vendor models, with details such as purpose, assumptions, limitations, dependencies and validation status. Without these, aggregation and prioritization of model risk are not possible.

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