Application of Bayesian Inference to Operational Risk Management

Bayesian inference that is able to combine statistical measurement approach and scenario analysis is effective exceedingly for measuring operational risk. In choosing the prior distribution, taking indicators that may be predictive of the risk of future losses, external circumstance and so forth into consideration makes it possible to obtain more realistic risk amount, this process itself is an important for enhancing operational risk management. This paper proposes the examples of application of Bayesian inference to banking