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Computing finite-time survival probabilities using multinomial approximations of risk models

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  • M. Costabile
  • I. Massabò
  • E. Russo

Abstract

We consider the problem of computing finite-time survival probabilities for various risk models. We develop an approximating discrete-time multinomial lattice that mimics the evolution of the corresponding continuous risk process. A simple recursive algorithm to compute survival probabilities is described. Numerical results show that the proposed scheme yields accurate values in all the considered cases.

Suggested Citation

  • M. Costabile & I. Massabò & E. Russo, 2015. "Computing finite-time survival probabilities using multinomial approximations of risk models," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2015(5), pages 406-422, July.
    • Handle: RePEc:taf:sactxx:v:2015:y:2015:i:5:p:406-422
    DOI: 10.1080/03461238.2013.838603
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