riodsandcapturethisdifferencebyusingamodelthatallowsforadata-generatingprocessthatchangesovertime.TosimulatesequencesoffuturedisbursementsIuseaMarkov-switchingmodel,whoseconstructionIexplainbelow.Themodelprojectsfuturedisbursementsonthebasisoftwodifferentsetsofhistoricaldata,oneforthe63-yearperiod1934-1996,theotherforthemorevolatile25-yearperiod1972-1996.Byprojectingdisbursementsonthebasisofthesetwodifferentsetsofhistoricaldata,Iamabletoanalyzetheadequacyofafundingarrangementundertwoverydifferentassumptions.Thefirstsimulation,basedondisbursementsfromthe63-yearperiod1934—1996,assumeslowfuturelosses.Incontrast,thesecondsimulation,basedondisbursementsfromthe25-yearperiod1972—1996,assumeshighfuturelosses.Infact,theaveragesimulateddisbursementforthesecondsimulationincreasesbymorethan100percent.
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