Exercise Session 7, 13 November 2018

Mathematics for Economics and Finance

Prof: Norman Schürhoff
TAs: Jakub Hajda, Jimmy Lerch

Exercise 1
Compute the following expression using Leibniz’s Formula:
Z α
ln(1 + αβ)
F 0 (α) for F (α) = dβ.
0 β

Exercise 2
A laboratory is running blood tests in order to detect a disease. This test detects 95% of diseased and detects by
error the disease to 1% of healthy people. We know that 0.5% of the population has this disease. Compute the
probability that someone is indeed sick given that the test detected the disease.

Exercise 3
There are exactly 64350 gold coins in a chest. One of them is drawn randomly and tossed 5 times. Each time the
outcome is ”heads”.

(a) What is the probability of this event?

(b) Now it appears that one of the coins was counterfeit : it had ”heads” on both sides. What is the probability
that the coin that was drawn and tossed initially was actually the counterfeit?
(c) Later on you learn that there were another 29 counterfeits among those in the chest, all of which had ”tails”
on both sides. Recalculate the probability that the coin tossed was the one with ”heads” on both sides.

Exercise 4
Let A and B be two independent events.
1) Show that Ac and B c are independent.
2) Show that Ac and B are independent.
3) Compute P(A | B)

Exercise 5
Let A1 , A2 , A3 be independent random events such that 0 < Pr(Ai ) < 1. Check if the following events are
independent:

1
 (a) A1 ∩ Ac2 and A3 ,
(b) A1 ∩ A2 and A2 ∪ A3 .

Exercise 6
For events A, B, C, C1 , C2 such that 0 < P (C) < 1 which of the following statements are true?

(a) P (A) > P (B) =⇒ P (A ∩ C) > P (B ∩ C)

(b) P (A |C ) = P (A) , P (B |C ) = P (B) , P (A) > P (B) =⇒ P (A ∩ C) > P (B ∩ C)
(c) P (A |C ) ≥ P (B |C ) , P (A |C c ) ≥ P (B |C c ) =⇒ P (A) ≥ P (B)
(d) 0 < P (Ci ) < 1, ∪2i=1 Ci = Ω, P (A |Ci ) ≥ P (B |Ci ) =⇒ P (A) ≥ P (B)

Exercise 7
Given a complete probability space (Ω, F, P). Prove that the conditional probability defined by

P (A ∩ B)
P ( A| B) = ,
P (B)
with A, B ∈ F is a probability measure.

Exercise 8
Let us assume the random variable Xt to be distributed as follows ∀t = 1...T :
 1
2 if x = 1,
P[Xt = x] = 1
2 if x = −1.
Then we rewrite the sum of those independent random variables as:
t
X
Wt = Xi .
i=1

Compute the expectation and variance of the random variable WT .

Exercise 9
Suppose that the random variable X the following pdf
( √
√ cx if x ∈ [0, 2 3],
fX (x) = x2 +4 √
0 if x∈/ [0, 2 3].

(a) Find the constant c.

(b) Find the cdf of X.
(c) Find the pdf of Y = X 2 + 4.

2
Exercise 10
Suppose that the random variable X has an exponential distribution with pdf

exp(−x) if x > 0,
fX (x) =
0 if x 6 0.

Find the pdf for

1
(a) Y = X,

(b) Y = ln X.