FRM II-or 9
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

FRM II-or 9

Postby » Sat Oct 04, 2014 4:20 am

Which of the following sources of model risk suggest a poor match of the model to the risk?
I. Incorrect model specification.
II. Incorrect model application.
III. Implementation risk.
IV. Programming errors.
A) I and II only.
B) I and III only.
C) I, II, and III only.
D) II and IV only.
Your answer: B was incorrect. The correct answer was A) I and II only.

I can understand opt I, but how would you explain II is correct

Finance Junkie
Posts: 946
Joined: Wed Apr 09, 2014 6:28 am

FRM II-or 9

Postby edupristine » Mon Oct 06, 2014 4:27 am

Incorrect Model Application amounts to either
1) Omission of important risk factors
2) or when the relationship between the variables is mis-specified.
3) or when an appropriately constructed model is applied in a wrong situation.

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