ASSIGNMENT 6 - due 14 April, 2015

The purpose of this exercise is to justify the method of mode matching for normal
distributions. Suppose that one is interested in estimating the tail probability
P(Z b),
for a standard normal random variable Z and a large threshold b.
(a) Write down the expression for the importance sampling estimate with the alternative sampling distribution N (, 1).
(b) Compute the variance of this estimate.
(c) Assume that the variance is minimized at = . Find the equation that
satisfies.
(d) Solve the equation to obtain , using the approximation that for large x,
(x)

(x)
,
x

1
2
(x) = ex /2 ,
2

where (x) is the cumulative distribution function of the standard normal distribution.