i

Joint distribution of random variables

Ex. 1 — Three balls are distributed in three cells randomly. Let N denote
the number of empty cells, Xi denote the number of balls in the ith cell,
i = 1, 2, 3.
N=X1+X2+X3 : Therefore N and
1.Are N and Xi ’s independent? Answer without any computation.
Xi are dependent
2.Following is the joint distribution of X1 and X2 :
X1 0 1 2 3
X2
1 3 3 1
0 27 27 27 27
3 6 3
1 27 27 27
0
3 3
2 27 27
0 0
1
3 27
0 0 0
Find E[X1 ] and E[X2 ]. What are the variances? Find correlation between
X1 and X2 . Computational only. Do it yourself
3.From part 2, find conditional expectation of X1 | X2 = 0. Computational only: Do it yourself
4.From part 2, find the distribution of X1 + X2 and max(X1 , X2 ). See scanned solution.

Ex. 2 — A student budgets Rs 4200 weekly for gas and a few quick meals
off-campus. Let X denote the amount spent for gas and Y the amount spent
for quick meals in a typical week. Assume this student is very disciplined and
sticks to the budget, spending Rs 4200 on these two things each week.

1.Can we model X and Y as independent random variables? Explain. No.

2.If the expectations of X and Y are zero, construct a quantity to measure

the degree of dependence between them. Explain the rationale behind the E[XY]; see slide notes
measure.

3.Suppose we assume X and Y are dependent. What is the effect of this de-Covariance term will be added;
if positive covariance, V(X+Y) will be
pendence on the variance of X +Y , when they are positively and negatively
on higher side and if negative, then
related respectively? lower side

Ex. 3 — Two random variables X and Y have the means and standard
deviations as given in the following table.
X Y
Mean 100 -50
SD 16 25

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Use these values along with ρXY = −0.5 to find the expected value and SD
of the following random variables that are derived from X and Y :

1.2X − 100 Expectation: 2E[X]-100; Var=4*V(X)

2.0.5Y Expectation=0.5*E[Y], Variance= 0.25 V(Y)
3. X+Y
2 Expectation=0.5*[E[X]+E[Y]]; Var=0.25*[V(X)+V(Y)+2*(-0.5)*sd(X)*sd(Y)]
4.X − 2Y Expectation=E[X]-2*E[Y]; Var=V(X)+4*V(Y)-4*(-0.5).sd(X).sd(Y)

Ex. 4 — Customers at a fast-food restaurant buy both sandwiches and

drinks. The following joint distribution summarizes the numbers of sand-
wiches (X) and drinks (Y ) purchased by customers.
1 sandwich 2 sandwiches
1 drink 0.4 0.2
2 drink .10 .25
3 drink 0 0.05
1.Find the expected value and variance of the number of sandwiches. Computational, Do it yourself

2.Find the expected value and variance of the number of drinks. Computational, Do it yourself

3.Find the correlation between X and Y. Computational, Do it yourself

4.Interpret the size of the correlation for the manager of the restaurant. Positively related
5.If the profit earned from selling a sandwich is $1.50 and from a drink is
$1.00, what is the expected value and standard deviation of the profit E[1.5X+Y]=3.7
made from each customer?
Y
6.Find the expected value of the ratio of drinks to sandwiches ( X ). Is it
E[Y/X] =1X(0.4+0.25)+2X0.1+0.5X0.2
+1.5X0.05 =1.025, not equal E[Y]/E[X]
µX
same as µY .

Ex. 5 — During the 2010-2011 NBA season, LeBron James of the Miami
Heat attempted 279 three-point baskets and made 92. He also attempted
1,485 two-point baskets, making 758 of these. Use these counts to determine
probabilities for the following questions.

1.Let a random variable X denote the result of a two-point attempt. X is

either 0 or 2, depending on whether the basket is made. Find the expected
E[X]=1.02, V(X)=1
value and variance of X.

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2.Let a second random variable Y denote the result of a three-point attempt.

Exp=0.99, Var=1.99
Find the expected value and variance of Y.

3.In a game, LeBron attempts 5 three-point baskets and 20 two-point bas-

25.35
kets. How many points do you expect him to score? (Hint: Use a collection
of iid random variables, some distributed like X and some like Y.)

4.During this season, LeBron averaged 22.7 points from two- and three-point
Ignore: The question seems
baskets. In the game described in part (c), he made 3 three-pointers incomplete.
Ex. 6 — A direct sales company has a large sales force that visits customers.
To improve sales, it designs a new training program. To see if the program
works, it puts some new employees through this program and others through
the standard training. It then assigns two salespeople to a district, one trained
in the standard way and the other by the new program. Assume that sales-
people trained using the new method sell on average $52,000 per month and
those trained by the old method sell on average $45,000 per month. The
standard deviation of both amounts is $6,000.

1.If the dollar amounts sold by the two representatives in a district are inde-
pendent, then do you expect the salesperson trained by the new program E[X-Y]=7000
to sell more than the salesperson trained by the old program?

2.Because the sales representatives operate in the same district, the com- V(X-Y) will be reduced due
to covariance term. Thus there
pany hopes that the sales will be positively correlated. Explain why the
wil be more consistent
company prefers positive dependence using an example with r = 0.8. sales performance.

Ex. 7 — Regional sales head (West) for Jeem’s Chocoholica, a famous brand
Benchmark return: 17%
of liquor chocolates, wanted to promote sales through advertising in the com- Investment should be done where
ing quarter. At the begining her budget for advertisement was Rs. 10 crores. the Sharpe Ratio of the portfolio
is higher.
Knowing her customer base, she decided to spent 50% of the budget on dis- Portfolio 1: 50% display ads,
50% click ad
play ads. She expectated to get a return of 40% on the investment with a Portfolio 2: 50% display ad, 50% SMS
standard deviation of 5%. Other options she had were the costlier click ad ad
Compute Sharpe ration for both and
option or the SMS option. She expected a return of 55% on investment in find which one is higher
click ads but with standard deviation as high as 27%. On the otherhand,
SMS ads were expected to give a return of 47% with a standard deviation of

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28%. The return correlation between click ad and display ad is found to be

0.18, where as the returns from display ad and SMS have a correlation -0.57.
In old days she has observed that salesperson visits used to provide a return
of 17% without fail (i.e. no risk), although it has been abondoned for the
time being due to lack of skilled salesperson. Now, if she wants to spend the
remaining budget in this quarter in one of the two channels, click ad and SMS
ad, which one she should consider? Answer based on your intuition. Then
provide support to your answer using risk weighted measure.

Harder Problems: requires knowledge of integration

Ex. 8 — Suppose the joint distribution of X and Y is given as:

f (x, y) = 6x2 y, 0 < x < 1, 0 < y < 1

0, otherwise

1.Find the marginal pdf’s f (x) and f (y). Are X and Y independent? [Hint:
X and Y are independent if f (x, y) = f (x)f (y)].

2.Find P 0 < X < 43 , 13 < Y < 2 , P (X + Y < 1).

X 
Ex. 9 — Let X and Y be two positive random variables. Will E Y be
E[X] X


same as E[Y ] ? Provide justification. [Hint: Justify logically cov Y , Y <0
and start with it]

Ex. 10 — The joint pdf of X and Y is given by

f (x, y) = A(xy + ex ), 0 < x < 1, 0 < y < 1

0, otherwise

Find A. Check if X and Y are independent or not.

Ex. 11 — A gun is aimed at certain point (origin (0,0)). Because of chance

causes, the actual hit can be any point (X, Y ) within a circle with radius R
about the origin (0,0), i.e the joint pdf f (x, y) = k, x2 + y 2 ≤ R2 . Compute

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R
k. What is the probability that the hit will be within a circle of radius 3.
What is the marginal ditsribution of X?

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