A life insurance company categorizes its policy holders asHealthy (H), Sick (S), or Dead (D).Describe the parameter and state spaces for each of the followingscenarios:(a) The medical state of a member can change at any time.(b) We are only concerned with the state of health in days aftertaking out the policy.
Question
A life insurance company categorizes its policy holders asHealthy (H), Sick (S), or Dead (D).Describe the parameter and state spaces for each of the followingscenarios:(a) The medical state of a member can change at any time.(b) We are only concerned with the state of health in days aftertaking out the policy.
Solution 1
No answer
Solution 2
(a) The parameter space in this scenario would be the set of all possible health states that a policy holder can be in at any given time, which are Healthy (H), Sick (S), or Dead (D). The state space would be a continuous time space, as the medical state of a member can change at any time.
(b) In this scenario, the parameter space remains the same as the previous scenario, which is the set of all possible health states: Healthy (H), Sick (S), or Dead (D). However, the state space would be a discrete time space, as we are only concerned with the state of health in days after taking out the policy. This means that the state of health is only observed or measured at the end of each day.
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