Therefore, there must be 2 1/3 transitions to get from state 1 to state 1.
The average number of days until the following terrible day is 2 and a third.
What is transition matrix?
A square (n x n) matrix called a transition matrix, commonly referred to as a stochastic or probability matrix, represents the transition probabilities of a stochastic system (such as a Markov Chain)[1]. The cardinality of the State Space that characterises the system being represented is correlated with the size n of the matrix.
The focus of this essay is on the transition matrices' pertinent mathematical features.
The Rating Migration Matrix entry discusses several aspects of how the idea is used in the specific context of credit risk.
Time in Discrete Versus Continuous
Whether the stochastic system is expected to evolve in continuous time or discrete time steps is a crucial decision of the modelling framework. Though computational representations generally entail some kind of discrete time approximation, continuous time frameworks may be more accurate and/or mathematically tractable than discrete time frameworks.
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