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States
Absorbing States
A system is said to be absorbed by a given
To find the probability of moving from a nonabsorbing state to each absorbing state, the
following procedures are applied.
1. Rearrange the transition matrix so that the absorbing
Note:
1. The sum of the matrices A and B is defined only when
Example
A lending firm classifies its accounts as follows.
S1 = paid
S2 = current
S3 = overdue
S4 = bad debt
Past experience shows the following transition probabilities.
Step 1
Step 2
Form three matrices using the entries of the
rearranged matrix. Call them:
I (the identify matrix where the elements
Step 2
Step 3
Construct the fundamental matrix F using the
formula
F = (I N)-1
Where the right side is the inverse of (I N).
Step 4
Obtain another matrix B by multiplying F by A.
B = FA
MATRIX B
S1 = paid
S2 = current
S3 = overdue
S4 = bad debt
In the context of the problem, the result may be interpreted
as follows:
A current account has a 0.8 probability of being paid
A current account has a 0.2 probability of turning into a
bad debt
An overdue account has a 0.4 probability of being paid
An overdue account has a 0.6 probability of becoming a
bad debt
S1 = paid
S2 = current
S3 = overdue
S4 = bad debt
This is another interpretation:
80% of all the accounts presently classified as current
will be paid and 20% will become bad debts
40% of all the accounts in the overdue classification
will be paid and 60% will ultimately turn into bad
debts
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