Skip to content

FRM Part II · FRM Exam Part II · Case Study: Model Risk and Model Validation

Which statement best describes the role of ongoing monitoring within the model validation framework?

Ongoing monitoring tracks model performance and input data over time to detect deterioration or changed conditions that could require adjustment or earlier revalidation. It complements periodic full validation rather than replacing it, and it applies to every model, whether developed internally or supplied by a vendor.

  1. AIt replaces the need for periodic full revalidation once a model passes initial validation
  2. BIt tracks model performance and input data over time to detect deterioration or changes in conditions that may warrant model changes or earlier revalidationCorrect
  3. CIt is performed solely by the model developers to confirm the code compiles
  4. DIt is needed only for vendor models, not internally developed models

Explanation

Ongoing monitoring checks that the model continues to perform as intended as markets, portfolios and data change, and can trigger recalibration or earlier revalidation. It complements rather than replaces periodic revalidation and applies to all models, internal or vendor.

Did you get it right without looking?

One question tells you little. A timed set on Case Study: Model Risk and Model Validation shows your real accuracy, how long you take and where you lose marks.

Practise Case Study: Model Risk and Model ValidationFree diagnostic mock

More Case Study: Model Risk and Model Validation questions