Markov Chains and its Applications to Insurance

Abstract

In this thesis we discuss the Markov model for insurance. We start by introducing the reader to Markov chains and deriving some results which we need for the remainder of the thesis. After that we shift our focus to insurance. First we introduce a mathematical way to write down quantities determined in some basic insurance contracts. Next we derive some results about the expected prospective reserves. Then we will implement the Markov chain model in the mathematical language of insurance. Lastly we will take a small detour into the world of statistics, to see how we would obtain estimates for intensities of transition, introduced in the Markov model.