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in BUS 3024S - Contingencies by

Hi

Please could you explain why the Kolmogorov differential equation for Q5(a) is $$pe^{-(\mu+p)t}$$ and not $$pe^{-(\mu+p)t}-\mu e^{-pt}$$image image image

by (2.9k points)
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I've checked the answer with the lecturers who seem to agree with me. Their final piece of advice for the exam is to not overthink the questions. Good luck today!!

1 Answer

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I believe it's because it's the dependent probability of going from healthy to retired. You are only looking for the probability of retirement where you go from state H to state R. You don't care afterwards if the person dies whilst retired. This make a lot of sense as to why they would ask for this if you have done pension funds. As such, you haven't so please don't worry or overthink this for the exam tomorrow. Stick to how you usually do it and read the question carefully. 

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