1.

Consider a random sample of 8

size n from a distribution with probabil< (1 + x) (1+) 0 < x
ity density function f (x; ) =
:
0
o.w.
(a) Find the Maximum Likelihood Estimator of . [5]
Q
Q
Ans. The jt. p.d.f. is ni=1 (1 + xi ) (1+) = n [ i (1 + xi )] (1+)
P
ln L = n ln (1 + ) i ln(1 + xi )
P
@ ln L
= n 1
i ln(1 + xi )
@
P
Therefore MLE is = n/ i ln(1 + xi ).
(b) Find a complete sucient statistic for . [4]
Ans. f (x; ) = (1 + x) (1+) This is of the functional form for Regular Exponential Class (REC). Since, support is independent of ,
q1 () = (1 + ), t1 = ln(1 + x). Hence REC, hence required comP
plete sucient statistic is i ln(1 + xi ).
(c) Find the Cramer Rao Lower Bound for 1/.[6]
0 ]2
2
i = [1/ 4 ]/[n/ 2 ] = 1/(n 2 )
Ans. @ @ln2 L = n 12 CRLB, = h[(1/)
2
@ ln L
E

@ 2

(d) Find the Uniformly Minimum Variance Unbiased Estimator of 1/.

[6]
1
1
Ans. E[ln(1+X)] = 0 ln(1+x)(1+x) (1+) dx = 0 ue (1+)u eu du
1
1
P
= 0 ue u du = 1 0 ve v dv = 1 . Since T = i ln(1 + Xi ) is a complete sucient statistic, by the Lemma of Lehmann and Schee, we
have that T is the U M V U E for E[T ] = 1 .
(e) Find the asymptotic normal distribution for and also for () =
[6+10]
1/.
i.e., pn( 0 ) N (0, 2 ) where, 2 = E[ @ 2 ln f2(x; ] 1 =
Ans. Use CLT, for ,
@
2
.
There
are
many
ways
of
doing
the
second
part,
the
easier
way
is
n
to use asymtotic theory for sequence of convergent r.v.s. The other
way is to reparameterize the density in terms of a new parameter, say,
= 1/. The density becomes, f (x; ) = 1 (1 + x) (1+(1/ ))
Q
L = n [ ni=1 (1 + xi )] (1+(1/ ))
P
ln L = n ln
(1 + 1 ) ln(1 + xi )
1

@ ln L
= n
@
2
E[ @ ln@f2(x;)
2

is

+
=

1
2

n
2

P
ln(1 + xi ) MLE, is = [ ln(1 + xi )]/n],
2 P
E[ln(1 + xi )] = n2 . Therefore 2 in this case
3

/n.

2. (a) Let X1 , . . . , Xn be a random sample from N (0, ). Verify that

P
S = Xi2 is sucient for by using the definition of suciency and
without using the Factorization Criterion or membership in the Regular Exponential Class. [14]
P
P
Ans. Putting

p 1 ne
2

p 1 ne
x2 =s
2
i i

p 1 ne
2

p 1 ne
2
s
i
2

i xi =
P
2
i i
2

x2
i i
2

s,

i
2

x2 =s
i i

p1 e
2

x2
i
2

fS (s)

dxi

fS (s)
P

p 1 ne
2

=
i

x2
i i
2

p 1 ne
2

p 1 ne
x2 =s
2
i i

i
2

p 1 ne
2

x2
i i
2

fS (s)

i
2

dxi

dxi

(Noting that P x2 =s i dxi is simply the volume of an n dimensional

i i p
sphere with radius s, we have ) = P 1 Q dxi does not contain ,

x2 =s
i i

and hence is free of .

(b) Verify that the statistic S is also complete for , without using
membership in Regular Exponential Class. [18]
Ans. To do this we need the distribution of S. This can be obtained
1
from observing that Y = X 2 p2
e y/(2) y 1/2 which is a Gamma distribution with scale parameter 2 and shape parameter is 1/2. Therefore S is distributed as Gamma with scale 2n, n/2. The condition
for completeness requires E[u(S)] = 0 for any arbitrary u implies u is
identically 0. Thus, with the constants gathered into c, we have the
equivalent condition that
1
cu(y)e y/(2n) y (n/2) 1 dy = 0
0
We now need to observe, that putting 1/(2n) = t, we have
1
u(y)e ty y (n/2) 1 dy = 0
0
which can be identified as a Laplace transform of u(y)y , for a positive
2

, and for all t > 0. Since the Laplace transform is 0 on an interval

of t containing 0, exists and is finite (=0), it is invertible. The inverse
transform is identically 0, and equals the argument function u(y)y for
all y > 0. This implies, u(y) = 0, for all y > 0. Hence S is complete.
3. Find a Pivotal Quantity based on a random sample, X1 , . . . , Xn from
U N IF (0, ) and construct a level 1 , Symmetric Two-sided Confidence Interval for unknown based on the sample for a given . [32]
Ans. The pivotal quantity depends on whether the distribution belongs to a location or scale family. By noting that any U N IF (0, ),
> 0, distribution is generated by multiplying U N IF (0, 1) with , we
can see that U N IF (0, ) is a scale family.
where is
Since this is a scale family, a pivotal quantity is given by /
the MLE for . The MLE for is found by maximizing the likelihood
Q
function L() = 1 .1[0<xi <] = n .1[xn:n <] where xn:n is the maximum order statistic. Since this is nondierentiable in , the maximum
is found by noting that L() is a decreasing function in , and therefore increasing in decreasing \theta. However since xn:n forms a lower
bund for , the maximum is reached at xn:n . As a statistic, the MLE
is therefore Xn:n = S (say).
To find the pdf of S, we use P [Xn:n < x] =P [Xi < x] 8i = 1, . . . , n
which reduces to (P [X < x])n if iid, and X is the common underlying
r.v. In this case,
8
>
>
0 if
x<0
>
<
x
P [X < x] = if 0 < x < .
>
>
>
:

1 if

x>
8
>
>
>
<

if
s<0
Therefore, P [S < s] == > n if 0 < s <
>
>
: 1 if
s>
nsn 1
Therefore the pdf fS (s) = n 1[0<s<] .
Now we need to find the distribution of T = S/. Since dt = ds/, the
0

sn

Jacobian is 1/, and the density transforms as

n 1
fS (s) = nsn 1[0<s<] = fT (t) = ntn 1 1[0<t<1] . Since this is free of , T
does become a valid Pivotal quantity. Therefore the two-sided interval
is obtained by solving the two equations, ntn 1 = 0.5., and ntn 1 =
1 0.5.. Thus, t1 = [/(2n)]1/(n 1) and t2 = [(1 /2)/n)]1/(n 1) .

4. Let X1 , X2 , . . . , Xn be a random sample from BER(p).

(a) Find the most powerful test of size of H0 : p = p0 against
Ha : p = p1 , p0 < p1 . [16]
(b) Find a Uniformly Most Powerful test of size of H0 : p = p0 against
Ha : p < p0 . [16]
Ans (a). As this is a test of simple hypothesis, we can use the Neyman
Pearson
Consider the ratio,
Q lemma.
(1 p0 )exi ln[p0 /(1 p0 )]
= Q(1 p1 )exi ln[p1 /(1 p1 )]
P
ln = n ln[(1 p0 )/(1 p1 )] + xi ln[p0 (1 p1 )/[p1 (1 p0 )]].
Consider the function t = x/(1 x). The derivative ofln t is 1/[x(1 x)]
which is positive in the interval [0,1] implying thereby that t is a monotonic non-decreasing function of x. This implies that the coecient
P
of xi in above, must be non-positive since p0 < p1 . Therefore, the
> k0,
MP test procedure is to reject H0 if ln < k or equivalently if X
for an appropriate k 0 such that the resulting critical region is of size .
> k 0 ] = 1 under H0 .
Choose k 0 , such that P [X
(b) Find a Uniformly Most Powerful test of size of H0 : p > p0 against
H a : p < p0 .
check for Monotone
Ratio. Consider the ratio again, with
Q Likelihood
(1 p2 )exi ln[p2 /(1 p2 )]
p1 < p2 and = Q(1 p1 )exi ln[p1 /(1 p1 )]
P
ln = n ln[(1 p2 )/(1 p1 )] + xi ln[p2 (1 p1 )/[p1 (1 p2 )]]. Put
P
t = xi , and ln = c + bt where b = ln[p2 (1 p1 )/[p1 (1 p2 )]] > 0
[following the monotonic non-decreasing property for y = x/(1 x)]and
c is a constant free of t. Therefore ln is a nondecreasing function of
4

t. Therefore, the UMP test procedure is to reject H0 if ln < k or

P
equivalently if xi < k 0 , for an appropriate k 0 such that the resulting
> k0] = 1
critical region is of size . Choose k, such that P [X
under H0 .

5. Consider an individual risk and let X = (X1 , X2 , . . . , Xn ) be the observation vector, where Xj is, for example, the aggregate claim amount
in the j-th year. Assume that conditionally, given = , the Xj s
(j = 1, 2, . . . , n) are independent and normally distributed, with mean
, and variance 2 . Further, the apriori distribution of is N (, 2 ).
2
2X

+ (1 )E[], where = n 2 .
Show thatP Bayes = +
= X
2 +n 2
n+

[32]
:= E[|X], the a posteriori density of |X
Ans. For P Bayes =
0
1
u(|X) /

p1 e
2

1
2

Qn

j=1

@p 1

1
2

A.

on the right-hand side of (2.23) containing we get

20

This implies |X N (0 ,
the identity

2 +n 2 X

2 +n 2

n
n+

2
2

),

20

X+
1

1
, 0 =
[ 12 + n2 ]!
n
n+

For the exponents

1
2
20

1
n
2
2 2
2 +
2
h
i

+ nX2 . From
2

, we get the formula for

P Bayes .
(d) Show that the quadratic loss of P Bayes is E[(P Bayes
)2 ] =
)2 ]. [12]
(1 )E[(P coll )2 ]= E[(X

2 = E[V ar[|X]]=
Ans. For the quadratic loss of P Bayes we get E
( 0 )2 =(1 ) 2 . Further (1 ) 2 =
2

)2 |]} = n .

n+

2
2

2
)2 ] =E{E[(X

= n E[(X

6. Consider two firms which are competing with each other for a share of
the market for a particular product which both of them manufacture
and distribute. Modeling this as a game with two players, denoted
M and W, assume that one play of the game consists of each player
5

nX
2

submitting their choices between two tactics C and D to the other

player. C denotes cooperating with the competing firm and making
compromises, whereas D denotes defecting from collaboration and get
involved in tactics to aggressively destroy the competing firms market
share. Let the payo matrix for the game be given as
W
C

(3,3)

(0,5)

M D (5,0) (1,1)
where (x, y) denotes the payos as x for M and y for W.
(a) Show that there exists a Nash equilibria in pure strategies for this
game.[10]
Ans (a) Consider pure strategies. Applying the characterization of
Nash Equilibrium, to the pure strategy C applied by M, W actually
gains in moving from C to D. Therefore (C,C) cannot be a NE. If M
applies D, W gains in moving from C to D. So (D,C) is not NE. If W
applies D, M gains from moving to C to D. Therefore (C,D) is not a
NE. However, if M and W both play D, there is no incentive for any
player to move from D. Therefore, (D,D) is a pure strategy NE.
(b) What is the MaxiMin decision for choice of strategy for M? [4]
Ans. For the Maximin decision,
W
W Min of each row
C

M D 5 1
M D 5 1
1
Max of the minimum values, is 0 and corresponds to D.
(c) What is the MiniMax Regret decision for choice of strategy for M?
[6]
Ans. For the MiniMax decision,

W
C

Regret Table W Max of each row

C

M D 5 1
M
D
0
0
0
Min of the maximum values, is 0 and corresponds to D.
(d) If the game is repeated with complete knowledge once (the game
being played twice in a sequence) with the final payo being the sum
of payos in the one-stage games, what is the Subgame Perfect Nash
Equilibrium?[12]
Ans. Since the Payos simply get added up, the Subgame Perfect
Nash Equilibrium is to play D at the start of every subgame.

In the example calculations, the figures in brackets represent the backward induction best response values which replace the payos at the
start node of each subgame. The figure is assuming the first two stages
7

as representing the first game and the last two stages the second game.
7. Let X be a single unclassified sample observation equally likely to have
originated from one of two populations characterized by the probability
mass functions BER(p1 ) and BER(p2 ) with p2 > p1 .
(a) Derive the misclassification probability for the Fisher Discriminant
Rule when p2 and p1 are known. [20]
Ans (a) The p.m.f is f (x) = px (1 p)1 x .
f (x) = px (1 p)1 x = ex ln p+(1 x) ln(1 p)
= ex[ln p ln(1 p)]+ln(1 p)
= (1 p)ex[ln p ln(1 p)]

pX (1 p )1

p1

The Fisher rule is given by 12 p1X (1 p12 )1 X >1. Or, ln(1 /2 )+X ln 1 p2p1
2
1 p2
0. Since X is equally likely to have come from one of the two populations, 1 = 2 , and ln(1 /2 ) = 0. Consider the function y = 1 x x ,
x.( 1)
dy
= (1 x).1
= (1 1x)2 > 0 for all 0 < x < 1. This implies
dx
(1 x)2
that ln

p1
1 p1
p2
1 p2

< 0. Therefore the rule becomes classify X as be-

longing to BER(p1 ) if X = 0. The total misclassification probability is 12 .P [X = 0|X BER(p2 )] + 12 .P [X = 1|X BER(p1 )] =
1
.(1 p2 ) + 12 .p1 = 1 p22 +p1 .
2
(b) Let X be known to have come from BER(p1 ), but p1 and p2 are now
unknown although p1 < p2 still holds. Show that Maximum Likelihood
estimates of unknown parameters in the Bayes posterior based Fisher
Discriminant Rule is inconsistent with the assumption of p1 < p2 , if
X=1 and consistent with the assumption if X=0. [12]
ekX
(Ans) L(k) = 1+e
kX if X BER(p1 ). If X=1, L(k) is maximized as

p1
1 p1
p2
1 p2

k ! 1. This implies that the ratio of

! 1. This can only
happen if either p1 = 1, p2 < 1, or p1 > 0, p2 = 0. In either case, p1 > p2
and contradicts the assumption of the problem. If X=0, however, L(k)
becomes the constant 1/2, and therefore any pair of values p1 < p2 will
be consistent with any MLE for k.
8

Notation, parameters and formulae for distributions

Notation

pdf/pmf f (x)

Exponential
X EXP ()
0<
Two parameter
Exponential
X EXP (, )
0<
Beta
X BET A(, )
0 < ,

x/

Mean

Variance

MGF Mx (t)
(1

t)

0<x

(x )/

(1

t) 1 et

<x
(+ ) 1
x (1
() ( )

x)

0<x<1

2
(+ +1)(+
)i

1
2

1+

Notation

pdf/pmf f (x)

Binomial
X BIN (n, p)
0<p<1
q=1 p
Bernoulli
X BIN (1, p)
0<p<1
q=1 p
Geometric
X GEO(p)
0<p<1
q=1 p

Poisson
X P OI()
0<
Chi-square
X 2 ()

n A x n x
@
p q
x
x = 0, 1, . . . , n

px q 1 x
x = 0, 1

pq x

Mean

Variance

MGF Mx (t)

np

npq

(pet + q)n

pq

pet + q

1/p

q/p2

pet
1 qet

x = 1, 2, . . .

x
x!

e(e

1)

x = 0, 1, . . .
x/2 1 e x/2
2/2 (/2)

= 1, 2, . . .

(1

2t)

/2

0<x

Uniform
X U N IF (a, b)
a<b

1
b a

(a + b)/2

(b

ebt eat
(b a)t

a)2 /12

a<x<b

Normal
X N (,

[(x )/ ]2

et+

2 t2 /2

0<

Gamma
X GAM (, )
0 < , 0 <

x/ x
()

0<x

10

(1

t)

Notation

pdf/pmf f (x)

Exponential
X EXP ()
0<
Two parameter
Exponential
X EXP (, )
0<
Beta
X BET A(, )
0 < ,

x/

Mean

Variance

MGF Mx (t)
(1

t)

0<x

(x )/

(1

t) 1 et

<x
(+ ) 1
x (1
() ( )

x)

0<x<1

11

2
(+ +1)(+
)i

1
2

1+