Estimation and Computation of Transition Intensities and Probabilities

You’ve seen how a multiple state model can show a policyholder moving through states like Healthy, Sick, and Dead. But the numbers that make the model run — the transition intensities — don’t just appear. We have to estimate them from real data. In this chapter, we turn raw moves and time spent into smooth intensity schedules, and then turn those intensities into the transition probabilities that actuaries actually use.