SOA 2004 Nov, Problem #13

[squareone]

Why can't you solve the problem as follows (it just doesn't come out with the right answer and I want to know why)

Let H, S, T be the expected values of healthcare for healthy, sick and terminated. e.g., H = E(H). Then:

H = 500 + (0.7 H + 0.1 S + 0.2 T)
S = 3000 + (0.3H + 0.6 S + 0.1 T)

Since T = 0 and only goes to itself, T = 0:

(1) 0.3H = 500 + 0.1S
(2) 0.4S = 3000 + 0.3H
0.4S = 3000 + (500+0.1S)
0.3S = 3500 -> S = 11666.70, H = 5555.56

Oh, now it works! Sure when I am doing a timed test I keep getting H = 3500, but NOOO when I go to post on the forum everything works out JUST fine.

/Bangs head on wall

[ontheroad]

This Markov Chain seems to go off into infinity. Are we responsible for knowing this material (taking the inverse of the matrix, etc.)? All the examples in the Daniel Study Note dealt with specific time periods.

What do you all think? Worth memorizing how to do this??

[Brutè]

This is no longer on the syllabus.

[squareone]

That it's not on the syallabus anymore.

/Continues banging head on table