QF314901: Mathematical Statistics II

Assignment 02: Review of Probability Theory II

Instructor: Chung-Han Hsieh (ch.hsieh@mx.nthu.edu.tw)
Teaching Assistant: Heng Tse Chou (hengtse.me@gmail.com)

Problem 2.1 (Standard Normal and Symmetry). Let X ∼ N (0, 1) be a random variable.
(i) Find P (X ≤ 0).
(ii) Find P (X > 0).
(iii) Show that P (X ≤ z) = P (X ≥ −z) for all z ∈ R. Hint: Explore the symmetry of normal
distribution; i.e., fX (x) = fX (−x) for all x.
Problem 2.2 (Standard Normal). Let X ∼ N (0, 1) and Y ∼ N (0, 1), and X, Y are independent.
Define a new random variable (
X, if XY > 0
Z :=
−X, if XY < 0
(i) Show that P (Z ≤ z) = P (X ≤ z) for all z < 0. Hint: You may find the identity P (Z ≤ z) =
P (X ≤ z, XY > 0) + P (−X ≤ z, XY < 0) useful.
(ii) Show that P (Z > z) = P (X > z) for all z > 0.
(iii) Using parts (i) and (ii) to determine the distribution of Z.
Problem 2.3 (All Moments of a Normal Distribution). The Maclaurin’s series for a smooth
function M (t) is given by
∞
X M (k) (0) k
M (t) = t .
k!
k=0
2
(i) Let Z ∼ N (0, 1). Then, as we learned last semester, Z has mgf MZ (t) = et /2 . Now find the
Maclaurin’s series for MZ (t) and write the first six terms explicitly.
(ii) Use part (i) to verify that E[Z 2k ] = 1 · 3 · · · (2k − 3) · (2k − 1) = (2k)!
2k k!
for k = 1, 2, . . . and
E[Z 2k+1 ] = 0 for k = 1, 2, . . . .
Hint: For Python user, you may use the sympy package to verify the calculation.1
Problem 2.4 (Random Sample for Gamma Distribution). Let X1 , . . . , Xn be a iiid random
variables from a gamma(α, β) population with pdf

β α α−1 −βx
fX (x) := x e
Γ(α)

for x ∈ (0, ∞) and the corresponding mgf is given by

MX (t) := (1 − tβ)−α
Pn
for t < 1/β. Find the mgf of the sample mean X := n1 i=1 Xi .
Definition 2.1 (Student’s t Distribution). Let X1 , . . . , Xn be a random sample from a normal
distribution with mean µ and variance σ 2 . Equivalently, a random variable T has Student’s t
distribution with n degrees of freedom, denoted by T ∼ tn , if it has pdf

Γ( n+1
2 ) 1 1
fT (t) = , t ∈ R.
Γ(n/2) (nπ) (1 + t /n)(n+1)/2
1/2 2
1 See also the documentation link: https://docs.sympy.org/latest/tutorials/intro-tutorial/calculus.html

1
Problem 2.5 (Deriving Student’s t Distribution). Let U ∼ N (0, 1) and V ∼ χ2 (n), with degrees
of freedom n. Assume that U and V are independent.
(i) Find the joint pdf of U and V .
(ii) Consider a transformation (T, W ) with

U
T := q , W := V.
V
n

(i) Find the joint pdf of (T, W ).

(ii) Show that T ∼ tn .
(iii) If n = 1, show that the Student’s t distribution reduces to the Cauchy distribution.
Problem 2.6 (AM-GM Inequalities). In mathematical finance, we are often required to calcu-
late different kind of means of certain quantities. Take X be a random variable taking values
x1 , x2 , . . . , xn with xi > 0 and probability P (X = xi ) = 1/n for all i = 1, . . . , n. Define arithmetic
mean xA , geometric mean xG , and harmonic mean xH as follows:
n
1X
xA := xi ;
n i=1
n
!1/n
Y
xG := xi ;
i=1
1
xH := 1
Pn 1 .
n i=1 xi

(i) Show that E[log X] = log xG .

(ii) Show that log xG ≤ log xA . Hint: You may find Jensen’s inequality useful.
(iii) Show that log x1H ≥ log x1G . Hint: Use Jensen.
(iv) Use parts (i) and (ii) to show that xH ≤ xG ≤ xA .

Problem 2.7 (Meaning of Means). Pick a stock that you like and retrieve the historical daily
price data for a one-year period from 2022/01-2022/12. You may find the data in Yahoo! Finance.
(i) Calculates the arithmetic mean, geometric mean, and harmonic mean of the daily returns
over 2022 year.
(ii) Comments on your findings. Which “mean” do you think is the most appropriate for mea-
suring the performance of the stock, and why?