Professional Documents
Culture Documents
5 Additional Issues
Concerning Discrete-Time
Markov Chains
Topics
Review of DTMC
Classification of states
Economic analysis
First-time passage
Absorbing states
transition probabilities
p20
p01
p11
p21
p02
p12
p22
Classification of States
Accessible: Possible to go from state i to state j (path exists in
the network from i to j).
d2
d1
0
1
a1
a0
a0
d3
a1
d4
3
a2
a3
a2
a3
(0 .5)
(0 .5)
(1)
(1)
1
(1)
(1 )
(1 )
1
(1 )
d2
d3
2
1
a1
3
a2
4
a3
Illustration of Concepts
0
Example 1
State
0
1
2
3
0
0
X
0
X
1
X
0
0
0
2
X
0
0
0
3
0
0
X
X
Illustration of Concepts
Example 2
0
State
0
1
2
3
4
0
X
X
0
0
X
1
X
X
0
0
0
2
0
0
X
X
0
3
0
0
0
X
0
4
0
0
0
0
0
Illustration of Concepts
Example 3
0
State
0
1
2
3
0
0
0
0
X
1
X
0
0
0
2
X
0
0
0
3
0
X
X
0
Classification of States
Example
1 0.4 0.6 0
0
0
2 0.5 0.5 0
0
0
P3 0
0 0.3 0.7 0
4 0
0 0.5 0.4 0.1
5 0
0
0 0.8 0.2
.6
.7
2
3
.5
.4
.5
.3
.5
.8
.1
5
.2
.4
0
1
2
3
4
0
1
1-p
0
0
0
1
0
0
1-p
0
0
2
0
p
0
1-p
0
3
0
0
p
0
0
4
0
0
0
p
1
For example,
State-transition network
0.8 0 0.2
P 0.4 0.3 0.3
0 0.9 0.1
2
3
Economic Analysis
Two kinds of economic effects:
(i) those incurred when the system is in a specified state, and
(ii) those incurred when the system makes a transition from one
state to another.
The cost (profit) of being in a particular state is represented by the
m-dimensional column vector
C
S
S S
S T
c1 , c2 ,..., cm
R
R
The cost of a transition is embodied in the m m matrix C cij .
where each component specifies the cost of going from state i to
state j in a single step.
ciS
cijR pij
j 1
SiS ici = C.
Problem: Find the steady-state probability and the longrun average annual premium paid by the customer.
Solution approach: Construct a Markov chain with four
states: (N, N), (N, Y), (Y, N), (Y,Y) where these indicate
(accident last year, accident this year).
P=
(N, N)
(N, Y)
(Y, N)
(Y, Y)
(N, N)
(N, Y)
(Y, N)
0.97
0
0.97
0.03
0
0.03
0
0.90
0
0
0.10
0
(Y, Y)
0.90
0.10
N, N
N, Y
.97
.90
.03
.90
Y, N
Y, Y
.10
.10
j = ipij, j = 0,,m
i=1
j = 1, j 0, j
j =1
0.9 (N,Y)
+ 0.9 (Y,Y)
Solution:
(N,N) = 0.939, (N,Y) = 0.029, (Y,N) = 0.029, (Y,Y) = 0.003
Index
0
1
2
3
State
Names
(N, N)
(N, Y)
(Y, N)
(Y, Y)
3
(Y, Y)
0
0.1
0
0.1
0.2
Sum
1
1
1
1
Status
Class-1
Class-1
Class-1
Class-1
Measure: Cost
Calculate Discount
Rate
0
0
(N, N)
1
(N, Y)
2
(Y, N)
3
(Y, Y)
Steady State
Analysis
Steady State
State
Cost
250
400
400
800
Expected
Transition Cost Matrix
State
0
1
2
3
Cost
(N, N) (N, Y) (Y, N) (Y, Y)
250
0
0
0
0
400
0
0
0
0
400
0
0
0
0
800
0
0
0
0
Start
More
Chart
Initial
1
2
3
4
5
6
7
8
9
10
0
0.027
0.02889
0.029022
0.029032
0.029032
0.029032
0.029032
0.029032
0.029032
0.9
0.09
0.0333
0.029331
0.029053
0.029034
0.029032
0.029032
0.029032
0.029032
440
273.05
261.3635
260.5454
260.4882
260.4842
260.4839
260.4839
260.4839
260.4839
440
713.05
974.4135
1234.959
1495.447
1755.931
2016.415
2276.899
2537.383
2797.867
Present
Worth
0
440
713.05
974.4135
1234.959
1495.447
1755.931
2016.415
2276.899
2537.383
2797.867
0
1
2
3
(N,N) (N,Y) (Y,N) (Y,Y)
Then,
First-Passage Computations
Using P =
(N, N)
(N, Y)
(Y, N)
(Y, Y)
(N, N)
(N, Y)
(Y, N)
0.97
0
0.97
0.03
0
0.03
0
0.90
0
0
0.10
0
(Y, Y)
0.90
0.10
0
1
states
2
3
03 = 1 + 0.9703 + 0.0313
13 = 1 + 0.923
23 = 1 + 0.9703 + 0.0313
Solution: 03 = 343.3, 13 = 310, 23 = 343.3
Game of Craps
Probability of win = Pr{ 7 or 11 } = 0.167 + 0.056 = 0.223
Probability of loss = Pr{ 2, 3, 12 } = 0.028 + 0.56 + 0.028 = 0.112
Start
P=
Win
Lose
P4
P5
P6
P8
P9
P10
Start
Win
Lose
P4
0.083 0.167
0.75
P5
0.111 0.167
0.722
P6
0.139 0.167
0.694
P8
0.139 0.167
0.694
P9
0.111 0.167
0.722
P10
0.083 0.167
0.75
Start-win
Start-lose
Sum
Cumulative
0.222
0.111
0.333
0.333
0.077
0.111
0.188
0.522
0.055
0.080
0.135
0.656
0.039
0.057
0.097
0.753
0.028
0.041
0.069
0.822
0.020
0.030
0.050
0.872
0.014
0.021
0.036
0.908
0.010
0.015
0.026
0.933
0.007
0.011
0.018
0.952
10
0.005
0.008
0.013
0.965
Absorbing States
An absorbing state is a state j with pjj = 1.
k + 1, . . . , m 1 be absorbing states.
Let qij = probability of being absorbed in state j
given that we start in transient state i.
Then for each j we have the following relationship
k
Go directly to j
Go to r and then to j
0
1
1-p
0
0
0
1
0
0
1-p
0
0
2
0
p
0
1-p
0
3
0
0
p
0
0
4
0
0
0
p
1
we have
q20 = 0 + 0.25 q10 + 0.75 q30
q10 = 0.25 + 0.75 q20
q30 = 0 + 0.25 q20
Solving yields q10 = 0.325, q20 = 0.1, q30 = 0.025
(This is consistent with the values found earlier.)