# 17-05-10 - UF-ESI-63.xmcdpage 1 of 217.5.10Payoff Insurance...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: UF-ESI-632117-05-10.xmcdpage 1 of 217.5.10Payoff Insurance Company charges a customer according to his or her accident history.(Hint:In case of difficulty, try a four-state Markov chain.)A customer who had no accident last year has a 3% chance of having an accident during the current year. A customer who had an accident last year has a 10% chance of having an accident during the current year.Create a transition matrix consisting of four two-digit binary states in its state space:{00, 01, 10, 11}where for rows00 = no accident two years ago and no accident one year ago01 = no accident two years ago and accident one year ago10 = accident two years ago and no accident one year ago11 = accident two years ago and accident one year agoand for columns00 = no accident one year ago and no accident zero years ago01 = no accident one year ago and accident zero years ago10 = accident one year ago and no accident zero years ago11 = accident one year ago and accident zero years agoSo given that each row must sum to one, it becomes clear that a "customer who had no accident...
View Full Document

## This note was uploaded on 05/12/2010 for the course ESI 6321 taught by Professor Josephgeunes during the Spring '07 term at University of Florida.

### Page1 / 2

17-05-10 - UF-ESI-63.xmcdpage 1 of 217.5.10Payoff Insurance...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online