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CT5 Sept /05 exam Q5

F

feixie.lse

Member
Can anyone please explain the answer of question 7 to me? Why do you need to multiply e^(t+u+1) to the probability that a life who is sick at age 21+t is still sick at age 21+t+u?
Many thanks.
 
remember that present value thing

feixie.lse said:
Can anyone please explain the answer of question 7 to me? Why do you need to multiply e^(t+u+1) to the probability that a life who is sick at age 21+t is still sick at age 21+t+u?
Many thanks.
Click to expand...

you are missing a delta somewhere i.e e^[d*(t+u+1)] = v^(t+U+1). this factor is discounting to get present value. since life has been continuously sick for u+1, and before that, it took t time going from H to H.

the whole thing is summing all the payoffs of v^(t+u+1)*dt each with probability yadi yadi yada

i must admit i forgot about the whole discounting thing as well even though every question drums this into you!
 
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sorry

Sorry, it was exam CT5 Sept/05 Q7 not question 5.
 
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