Modelling and predicting nonlinear processes are more complicated, especially where the parameters change through time in a pre-determined way. In this paper, attempts are made to build an appropriate model for the prediction of a nonlinear dynamical system by using hierarchically structured model. The mathematical representation of the process, in this context, is by a set of linear stochastic differential equations (SDE) with unique solutions. The problem of realization is that of constructing the dynamical system by looking at the problem of scientific model building. In model building, one must be able to calculate the dynamical behaviour of the system using mathematical model with an accuracy which is at least within the tolerances allowable under control. For simplification, individual risks policies suggestive enough to demonstrate relevance of the method in more realistic insurance models was illustrated in simple context so that the basic ideas can be easily grasped.
Journal of the Nigerian Association of Mathematical Physics, Volume 19 (November, 2011), pp 15 – 20