Unit-1-Probability-models.

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Introducción a la Inferencia Estadística

2º Grado en Administración y Dirección de Empresas

Facultad de Economía
Universitat de València

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Unit 1: probability models

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Univariate random variables
1.Random variables and probability distributions

A random variable is a variable that takes specific value with given probabilities.
- We denote random variables using capital letters near the end of the alphabet:
X,Y,U,V,W.
- Notation: capital letters (X) denote a random variable; lowercase (x) denote a specific
value.

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Types of random variables:
- Discrete: are the outcome of a counting process (number of passengers going through
customs any given day).
- Continuous: are the outcome of a measuring process, and can take any value in a given
internal (time to complete statistics homework).
Defining discrete random variables:
- The probability distribution function P(X = x) assigns probabilities to values of the random
variable. It measures the probability that the random variable X takes on the value x.
- Alternatively, the cumulative distribution function F(x) measures the probability that the
random variable X is less than or equal to x. F(x) = P(X ≤ x)
Defining continuous random variables:
- X is continuous à P(X = x) = 0 for all possible values x.
- The probability density function f(X = x) assigns probabilities to intervals of the random
variable the specific values of the random values.
- In practice, we will be using the cumulative distribution function F(x) (defined as in the
discrete case, F(X) = P(X ≤ x).
Mean and variance of a random variables:
- The mean, or expected value, of a random variable X is 𝐸(𝑋) = 𝜇𝑥. It can be thought of
as the average value that is attained by a random variable.
- The variance of X is 𝑉𝑎𝑟(𝑋) = 𝜎 ! 𝑥. Generally speaking, the greater the variance (or sd)
the more spread out the possible values of the random variable.

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2.Specific univariate models

Discrete probability models:

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Continuous probability models:

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3.Univariate linear transformations

Linear transformations of random variables:

- Let X be a random variable and a and b be constants. Then Y = a + bX
- It is a linear transformation of X. Note that b scales X (such that for any |𝑏| > 1 the linear
transformation amplifies X; otherwise, it dampens it) and a shifts it.
Mean and variance of linear transformations:
- Y = a + bX
- Mean of Y is à
- Variance of Y is à

Special case: transformation of a normal variable

- Let X be a normal random variable:
- Define Y = a + bX
- Then, Y is also a normal random variable

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Bivariate random variables

1.Jointly distributed variables

Goal: to examine the probability distribution of two (bivariate) or more (multivariate) possible
related random variables.

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Bivariate example: a basic economic relation links income (X) and consumption (Y). If we assume
X and Y are random variables then we can define the joint distribution for (X,Y).
The discrete case:
- When (X,Y) are discrete, their distribution is defined by a joint probability distribution
function.
- Joint probability for (X,Y) à 𝑃",$ (𝑥, 𝑦) = 𝑃(𝑋 = 𝑥, 𝑌 = 𝑦) probability that X = x and
Y = y.
- Marginal distribution of X à 𝑃" = ( 𝑋 = 𝑥) à distribution of X regardless of the value
of Y.

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The continuous case:
- If (X,Y) are continuous, their distribution is defined by a joint cumulative distribution
function.
- Joint cumulative prob. for (X, Y) à 𝐹",$ (𝑥, 𝑦) = 𝑃(𝑋 ≤ 𝑥, 𝑌 ≤ 𝑦) probability that X ≤ x
and Y ≤ y.
- Marginal distribution of X à 𝐹" = ( 𝑋 ≤ 𝑥), is the cumulative distribution of X regardless
of Y.
Independence:
- (X,Y) are independent if the joint distribution is the product of the marginal distributions.
- Discrete case à 𝑃(𝑋, 𝑌) = 𝑃" (𝑋) 𝑥 𝑃$ (𝑌)
- Continuous case à 𝐹(𝑋, 𝑌) = 𝐹" (𝑋) 𝑥 𝐹$ (𝑌)

2. Measuring linear relations

Covariance: is a measure of the linear relation between two random variables:

- N
- If 𝜎"$ > 0 à X tends to be large when Y is large
- If 𝜎"$ < 0 à X tends to be large for lesser values of Y
- If 𝜎"$ = 0 à (X,Y) are uncorrelated (no linear relation).

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Correlation:

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- The correlation coefficient à
- −1 ≤ 𝜌"$ ≤ 1
- 𝜌"$ measures the strength of the linear relationship between X and Y.
o 𝜌"$ > 0 à positive linear relationship.
o 𝜌"$ < 0 à negative linear relationship.
o 𝜌"$ = 0 à no linear relationship.
Independence, covariance and correlation:
- If X and Y are independent (no relationship between them), then they are also
uncorrelated (𝜎"$ = 𝜌"$ = 0): independent random variables have zero

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covariance/correlation.
- However, the converse is not necessarily true. Two variables that are uncorrelated may
or may not be independent.

3. Multivariate linear transformations

Notation for bivariate distributions:

- Let X and Y be two random variables. A bivariate distribution gives the probability that
each variable falls in any particular range or discrete set of values.
- Let their means, variances and covariance be 𝜇% , 𝜇& ; 𝜎"! , 𝜎$! , and 𝜎"$ respectively. We
use the notation:

Linear transformations of two random variables:

Special case: independent normal random variables:

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Sum of n independent random variables:

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Special case: sum of n independent normal random variables:

Reproductive property of specific distributions:

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- Let 𝑋' , 𝑋! , … 𝑋( be n independent random variables and W their sum: 𝑊 = 𝑋' + 𝑋! +
⋯ + 𝑋(
- If 𝑋) are binary random variables (Bernoulli) each one with the same probability of
success p, then W is a binomial random variables:
- If 𝑋) are Poisson random variables each one with the same mean 𝜆, then W is a poisson
random variable:
- If 𝑋) are normal random variables ach one with the same mean 𝜇𝑥 and variance 𝜎"! , then
W is a normal random variable:

4. The bivariate normal distribution

Let X and Y be two normal random variables:

Consider the linear transformation: W = a + bX + cY

If W is also normal for any set of values 𝑎, 𝑏, 𝑐 ∈ ℝ then (X,Y) is a bivariate normal distribution.
Notation:
Special case: uncorrelated implies independence:

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