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distributions
ECON1203 Statistics
Chapter 7 Random variables & discrete probability
distributions
Random variables
outcome (e.g. 1, 2, 3, )
Discrete random variable has a countable number of values (e.g.
number of people)
Continuous random variable has an uncountable number of values
2.
0 P ( x ) 1[for all x]
P ( x )=1
all x
2.
3.
all x
E ( c )=c
2.
E ( X +c )=E ( X )+ c
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E ( cX )=cE ( X )
V ( c )=0
2.
V ( X +c )=V ( X )
3.
V ( cX )=c2 V ( X )
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2.
P ( x , y )=1
all x all y
( x X ) ( yY ) P ( x , y )
Covariance=COV ( X , Y )= xy
1.
all x all y
xyP ( x , y ) X Y
all x all y
2.
C oefficient of correlation= =
xy
x y
E ( X +Y )=E ( X ) + E ( Y )
2.
V ( X +Y )=V ( X ) +V ( Y ) +2 COV ( X ,Y )
3.
Mean=E ( R p )=w1 E ( R 1 ) +w 2 E ( R2 )
w21 V ( R1 ) +w 22 V ( R2 ) +2 w1 w 2 COV ( R 1 , R2)
Variance=V ( R p )
w21 V ( R1 ) +w 22 V ( R2 ) +2 w1 w 2 1 2
Describing portfolios of
stocks
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1.
Mean=E ( R p )= wi E(Ri )
2.
Variance=V ( R p ) = w i i + 2
i=1
i=1
i=1 j=i+1
w i w j COV ( Ri , R j )
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Binomial distribution
Requirements of binomial experiments
(n)
P ( success )= p
3.
P ( failure ) =1 p
4. Independent trials
Probability of
p :
probability of success
P( x)
n x
C x p ( 1 p )
n!
p x ( 1p )nx
x ! ( nx ) !
Cumulative probability =P (X x )
Using binomial tables
1.
P ( X x )=1P ( X [ x1 ] )
2.
P ( x )=P ( X x )P( [ x1 ] )
Mean==np
2.
Variance= 2=np ( 1 p )
3.
Standard deviation= = np ( 1 p )
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trials and a