hard · FRM Part 1 Quantitative Analysis
A fraud detection algorithm has a prior probability of fraud on any transaction of 0.1%. The algorithm triggers a 'Level 1' alert with 80% sensitivity and 2% false-positive rate. Upon manual review, a 'Level 2' suspicious pattern is identified with 90% sensitivity and 5% false-positive rate. Assuming signals are conditionally independent, find the final probability of fraud.
- 41.98%
- 3.85%
- 72.00%
- 1.00%
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