Survival Analysis

DEFINITION of 'Survival Analysis'

A branch of statistics which studies the amount of time that it takes before a particular events, such as death, occurs. However, the same techniques can be used to study the time until any event. While a time-to-event study is theoretically simple to undertake, in practice there are a number of problems if the event being studied is relatively rare or takes a long time to occur. For instance, a study of death rates might be highly difficult to undertake if most subjects outlive the term of the study, or drop out of the study while it is in progress. Results from such analysis are used to help calculate insurance premiums.

BREAKING DOWN 'Survival Analysis'

Within finance, survival analysis has applications to several areas, particularly insurance. For instance, a study of death rates would be directly applicable to the calculation of life insurance premiums. Given a large enough data set, statisticians can develop a hazard function, which outlines the incidence of death at different ages given certain health conditions. From this function, it is simple to compute the probability that the insured will become deceased during the term of the life insurance policy. Factoring in the value of the potential payouts under the policy, an appropriate insurance premium can be calculated for any policy.

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