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= xe 22 dx
2
1 Z u2
= (u + )e 22 du
2
1 Z u22 1 Z u22
= ue 2 du + e 2 du
2 2
At this point we can recognise the second integral as the integral of a N (0, 2 )
r.v being integrated over all its range, so we can use the normalisation property
to get
1 Z u22
E(X) = ue 2 du + 1
2
Here we can tackle the remaining integral either by noting that u is an odd
u2 u2
function and e 22 is even so that ue 22 is odd and its integral over (, )
u2 u2
u2
this gives ue 22 du = 2 e 22 +c,
R
is 0 or by making the substitution v = 2 2
,
u2
noting that e 22 goes to 0 as u or u gives the definite integral as
0.
2. Show the the variance of N (, 2 ) is 2
Solution.
Z
V ar(X) = (x )2 fX (x)dx
1 Z (x)2
= (x )2 e 22 dx
2
1 Z 2 u22
= u e 2 du
2
f g 0 du = [f g] gf 0 du, with f = u,
R R
Here we can use integration by parts,
u2 u2
f 0 = 1, g 0 = ue 22 and g = 2 e 22 . Then
Z
1 2
u2 u2
V ar(X) = 2
[ ue 2 ] + 2
e 22 du
2
1 Z u22
= 2 e 2 du
2
= 2 1
3. Show that for any random variable X with a finite second moment E(X 2 ) < ,
V ar(X) = E((X )2 )
= E(X 2 2X + 2 )
= E(X 2 ) 2E(X) + 2
= E(X 2 ) 2E(X) + 2
= E(X 2 ) 22 + 2
= E(X 2 ) 2 .
Since Y N (, 2 ),
1 (x)2
fY (x) = e 22 .
2
Therefore
1 (ln x)2
fY (ln x) = e 22 ,
2
and thus
1 (ln x)2
fX (x) = e 22 .
2x
5. X has N (20, 22 ) distribution and Y has N (0, 1) distribution and they are
independent.
6. X has N (20, 22 ) distribution and Y has N (0, 1) distribution, and X and Y are
correlated with correlation = 0.5.
7. Let X and Y by random variables with E(X) = 20, V ar(X) = 4, and E(Y ) =
10, V ar(Y ) = 1, = 0.5.
Find the covariance and the correlation between X and U = 2X 3Y
Solution.
Rearranging the formula for correlation gives
q
Cov(X, Y ) = V ar(X)V ar(Y )
= 0.5 4 1
= 1.
Cov(X, U ) = Cov(X, 2X 3Y )
= (1)(2)Cov(X, X) + (1)(3)Cov(X, Y )
= 2V ar(X) 3Cov(X, Y )
= 2431
= 5.
Cov(X,U )
By the definition of correlation we have Corr(U, X) = .
V ar(X)V ar(U )
We need V ar(U ),
V ar(U ) = Cov(U, U )
= Cov(2X 3Y, 2X 3Y )
= 4Cov(X, X) + 2(2)(3)Cov(X, Y ) + (3)(3)Cov(Y, Y )
= 4V ar(X) 12Cov(X, Y ) + 9V ar(Y, Y )
= 4 4 12 1 + 9 1
= 13.
Hence Corr(U, X) = 5 = 5 = 5 13
.
134 2 13 26
8. Let X1 and X2 both have Lognormal LN (0, 1) and are independent. Find the
following:
(a) Find P (X > Y ). Hint: write this as P (X Y > 0) and use Theorem 11,
p.18 in the Notes.
Solution. " #
X
P (X > Y ) = P (X Y > 0). Now notice that X Y = [1 1] .
Y
Thus, by Theorem 11, X Y is N (a,"aaT ).# " #
T 1 1
We have a = 0 and aa = [1 1] = 2 2,
1 1
i.e. X Y N (0, 2 2). Therefore,
1
P (X > Y ) = P (X Y > 0) = .
2
Remark: there is no need to calculate the variance. Once we know that
the distribution of X Y is Normal with mean zero, it is symmetric about
0 so that P (X Y > 0) = 0.5.
(b) Write an integral epxression for P (X D) where D is a set on the plane.
Evaluate it for D = {(x, y) : x y}.
Solution.
Let fX,Y (x, y) be the joint density of X and Y . Then,
Z Z
P (X D) = fX,Y (x, y)dxdy.
(x,y)D
X = 1 + 1 Z1 , Y = 2 + 2 Z2
for some non-random matrix A. Derive the formula for (U,V ) , the covariance
matrix of (U, V ),
(U,V ) = A(X,Y ) AT .
= a11 a21 V ar(X) + (a11 a22 + a12 a21 )Cov(X, Y ) + a12 a22 V ar(Y ), and
Substitute these values back into the matrix (U,V ) , we find that this is
equivalent to
" #" #" #
a11 a12 V ar(X) Cov(X, Y ) a11 a21
(U,V ) = = A(X,Y ) AT .
a21 a22 Cov(X, Y ) V ar(Y ) a12 a22
(b) Assume (X, Y ) is bivariate Normal. Derive the formula for (U,V ) using
representations for multivariate normal and matrix multiplication.
Solution. " # " #
X Z1
Since (X, Y ) is Normal, it has representation = (X,Y ) + B
Y Z2
T
for some matrix B such that (X,Y ) = BB . Thus,
" # " # " #
U X Z1
=A = A(X,Y ) + AB .
V Y Z2
12. Show that the average of n independent identically distributed Normal random
variables N (, 2 ) is a Normal random variable with mean and variance 2 /n
Solution.
Let X be multivariate normal with mean vector
.
.
.
2 0
0
0 2 0
= .. .. ... .. .
. . .
0 0 2
We are interested in n1 ni=1 Xi which is the same as aX where a is the 1 n
P
13. Simulate two observations on the bivariate normal (X1 , X2 ) with mean 0,
V ar(X1 ) = 1, V ar(X2 ) = 4 and correlation = 0.9.
Solution. First, simulate a pair of independent standard normal Z1 and Z2 .
To do this in Excel, we first generate Uniform(0,1) random variable U using
command =rand(), then obtain Z1 from the inverse of standard Normal
distribution =normsinv(U ). Repeat the steps for Z2 . Then calculate
q
X1 = 1 + 1 Z1 and X2 = 2 + 2 Z1 + 1 2 2 Z2