Multiple state models

Multiple state models

1. Useful as models for different types of life insurance policies.

   • More complicated forms of insurance require more complicated models.

2. These models consist of a finite set of states with arrows indicating possible movements between some, but not necessarily all, pairs of states.

   • It is the benefits provided by the insurance policy which determine the nature of the appropriate model.
     • Examples

3. Stochastic process

   • discret time
   • continuos time
     • Collection of random variables indexed by a continuous time variable.

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