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Discrete RVs
Random Variables
Discrete RVs
Random VariablesExample
Jays play a best-of-three series against the Yankees
S = {LL, WW , LWW , WLW , WLL, LWL}
Define X as
X (LL) = 0
X (WLL) = X (LWL) = 1
X (WW ) = X (LWW ) = X (WLW ) = 2
Define Y as
Y (LL) = Y (WW ) = 2
Y (LWW ) = Y (WLW ) = Y (WLL) = Y (LWL) = 3
Define Z as
Z (LL) = Z (WLL) = Z (LWL) = 0
Z (WW ) = Z (WLW ) = Z (LWW ) = 1
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Describe in words X , Y , Z
Discrete RVs
{X 15} {X 20}
{X 20} {X 15}0
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Discrete RVs
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Discrete RVs
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Discrete RVs
Example: Two fair dice are tossed. Let X denote the total
of the two faces.
Find the pmf of X and draw its line graph.
Compute P(X 8) and P(3 X < 6).
Find the pmf of Y = (X 7)2
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Discrete RVs
x R
Discrete RVs
lim FX (x) = 1
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Discrete RVs
Expected Values
Two evenly matched teams play a best of seven series and
X denotes the length of the series. Give a table that
describes pX
Now suppose we observed a large number, N, of such
series. Let X1 , X2 , . . . , XN denote the lengths of each
series and N4 , N5 , N6 , N7 denote the number of times the
series goes to k games, k = 4, 5, 6, 7.
Would expect
Note also that
Nk
N
PN
i=1 Xi
P7
k =4 kNk
Discrete RVs
Expected Value
Definition: Let X be a discrete random variable with set of
possible values D and pmf pX . The expected value or
mean value of X is denoted E[X ] or x is defined via
X
E[X ] = x =
x pX (x)
xD
This
P expected value will exist provided that
xD |x|pX (x) <
If the experiment is repeated a large number of times, and
if Xi =outcome of i th repetition, then
X1 + X2 + + XN
E[X ]
N
and
X1 + X2 + + XN
= E[X ]
N
N
lim
Discrete RVs
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Expected Value
2
3
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Discrete RVs
h(x)pX (x)
xDX
assuming that
xDX
xDX
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Discrete RVs
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Discrete RVs
Variance
Defintion: Let X be a discrete RV with pmf pX and
expected value . Then the variance of X , denoted Var [X ]
or X2 or 2 is
Var [X ] = E[(X )2 ] =
(x )2 pX (x)
xDX
q
X2
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Example
The percentage returns on three different stocks A, B, C are
random variables with the following pmfs
-5
1
7
r
P(RA = r ) 0.25 0.50 0.25
P(RB = r ) 0.1
0.8
0.1
r
-10
1
12
P(RC = r ) 0.1
0.8
0.1
Exercise: Show that the expected return on all three
stocks is 1%. (e.g., A = B = C = 1).
Question: You have $100 to invest and you can only
invest in a single stock. Which one do you prefer? Why?
Compute the variance of the returns for all three stocks.
Discuss.
In view of the variances of the returns, which stock do you
prefer to invest in? Why?
Discrete RVs
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Discrete RVs
Moments
Definition: Expected values of powers of X are called
moments about 0 or simply moments
E[X ] is the first moment about 0
E[X 2 ] is the second moment about 0
E[X r ] is the r th moment about 0
Discrete RVs
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Discrete RVs
MX (0) = E[X k ]
Taking derivatives of mgf and evaluating at zero computes
moments of the RV X .
Example: For the Example on Slide 21, compute the
mean and variance of X using the mgf
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Discrete RVs
2 /2
Discrete RVs