2 Stochastic cohort approach

E q u a t i o n (15.1.6) provides a useful starting point for considering

a stochastic mode l of the life insurance process, as w i l l be explored

in the subsequent sections.

15.2 Stochastic cohort approach

M o s t of the quantities in (15.1.6) and (15.1.7) can be made stochastic

by appropriately adapting the approaches which were derived in

previous chapters for the general insurance process. A model can

then be constructed to evaluate the uncertainties affecting the long-

term development of the cohort. The ideas w i l l be extended to the

whole portfolio in section 15.3, using the cohorts as bu i ld ing blocks.