Volume 2 — Governance and ControlsGovernance and Controls © Copyright 2002, All rights reserved 32 Key Reports • Position reports. • P&L reports. • Limit compliance reports. • MTM reports. • VaR reports. 1.3.2 Price Curve Validation Price curves are the primary driver of portfolio valuation, and it is essential to ensure the accuracy of the prices. As such, price curve validation is a key control performed by the middle office, which should independently obtain market prices and verify the accuracy of the forward curves for both market and non-market years. Objectives • Value transactions of the business using current market data and/or models. • Ensure that forward price curves are reasonable and reflect reality. • Ensure that curves are developed using sound methods approved by the middle office. Best Practices and Controls • The middle office should validate each forward curve daily. • Curve validation should include reviewing curves for outliers. • Validation is always performed by the middle office in both market and non-market years. • Although the front office may be involved in the validation process, authority for validation rests with the middle office. • If the front and middle offices disagree on the price curve, it should be marked to the price chosen by the middle office and later submitted for resolution by the CRO or his or her assignee, with input from commercial management. • For market years, inputs include broker quotes and transaction prices, along with models for extrapolation and interpolation. • For non-market years, the primary inputs are models, which should undergo rigorous testing and assumption review.