The Research on the Internal Fraud of Chinese Commercial BanksBased on the Bayesian Analysis

Internal fraud is the most important loss type of Chinese commercial banks and has caused a lot of losses.Since the nature characteristics of operational risk and the time of data collecting is short,loss data is deficiency,traditional methods are hard to derive stable parameters estimation with small sample.In order to calculate more accurate with little data,this paper uses the Bayesian Markov Chain Monte Carlo simulation to calculate the parameters.Under the framework of Loss Distribution Approach,we set the loss frequency Poisson distribution,the prior is Gamma distribution,while the loss severity is Generalized Pareto distribution,the prior distribution is mixture Gamma distribution,then we got the posterior distributions of loss frequency and loss severity of internal fraud of different business lines,with Monte Carlo simulation we get the integrated distributions of different business lines.The results are good and compared with tradition Extreme Value Theory method,Bayesian analysis is helpful to derive accurate and stable parameters and therefore the total loss with small sample,and using this method the bank can prepare lower operational capital.