ABSTRACT
Financial or actuarial models are used to quantify and analyze future financial actions. These actions may be contingent on many factors, such as time, price, and speculation, and the resulting models fall into one of two main types. In the first, the actions are deterministic and are completely defined in terms of their form and timing. This is true for monthly mortgage payments that continue for a fixed number of years where the interest rate may be either fixed or variable. In the second type, the financial action itself may be initiated by a stochastic event. Examples of stochastic financial actions include the payment of a benefit associated with an insurance policy at the time of death of the policyholder or the purchase of a stock at the time its value exceeds a predefined price. Following actuarial science nomenclature, the collection of economic actions with defined future time conditions is referred to as a status model. Thus, following the previous descriptions, the two basic types of status models are deterministic and stochastic.
