1

UNIT 5
RANDOM NUMBER GENERATION
Random numbers are a necessary basic ingredient in the simulation of almost all discrete
systems Most com!uter languages ha"e a subroutine# ob$ect# or function that %ill generate a
random number &imilarly simulation languages generate random numbers that arc used to
generate e"ent limes and other random "ariables
PROPERTIES OF RANDOM NUMBERS
A se'uence of random numbers# ()# (*# # must ha"e t%o im!ortant statistical !ro!erties#
uniformity and inde!endence Each random number Ri, is an inde!endent sam!le dra%n from a
continuous uniform distribution bet%een +ero and ) That is# the !df is gi"en by,
&ome conse'uences of the uniformity and inde!endence !ro!erties are the follo%ing,
If the inter"al -.#)/ is di"ided into 0 subinter"al of e'ual length# the e1!ected number of
obser"ations in each inter"al is N2n %here N is the total number of obser"ations
The !robability of obser"ing a "alue in a !articular inter"al is inde!endent of the
!re"ious "alues dra%n
GENERATION OF PSEUDO-RANDOM NUMBERS
3seudo means false#so false random numbers are being generated The goal of any generation
scheme# is to !roduce a se'uence of numbers bel%een +ero and ) %hich simulates# or initates#
the ideal !ro!erties of uniform distribution and inde!endence as closely as !ossible
(hen generating !seudo4random numbers# certain !roblems or errors can occur These
errors# or de!artures from ideal randomness# are all related to the !ro!erties stated !re"iously
&ome e1am!les include the follo%ing,
The generated numbers may not be uniformly distributed
The generated numbers may be discrete 4"alued instead continuous "alued
The mean of the generated numbers may be too high or too lo%
The "ariance of the generated numbers may be too high or lo%
2
There may be de!endence The follo%ing are e1am!les,
o Autocorrelation bet%een numbers
o Numbers successi"ely higher or lo%er than ad$acent numbers
o &e"eral numbers abo"e the mean follo%ed by se"eral numbers belo% the mean
Usually# !seudo4random numbers are generated by a com!uter as !art of the simulation
Numerous methods are a"ailable In selecting a routine# there are a number of im!ortant
considerations
The routine should be fast
The routine should be !latform inde!endent and !ortable bet%een different
!rogramming languages
The routine should ha"e a sufficiently long cycle 5much longer than the re'uired number of
sam!les6
The random numbers should be re!licable Usefull for debugging and "ariance reduction
techni'ues
Most im!ortantly# the routine should closely a!!ro1imate the ideal statistical
!ro!erties
TECHNIQUES FOR GENERATING RANDOM NUMBERS
The linear congruential method is most %idely 7no%n (ill also re!ort an e1tension that yield
se'uences %ith a longer !eriod
LINEAR CONGRUENTIAL METHOD:
3roduces a se'uence of integers# X1# X2,... bet%een +ero and m ) according to the
follo%ing recursi"e relationshi!,
8i9) : 5a 8i 9 c6 mod m i : .#)# *#
The initial "alue 8. is called the seed# a is called the constant multi!lier# c is the
increment# and m is the modulus
If c ; . in abo"e e'uation# the form is called the mixed congruential method.
(hen c = .# the form is 7no%n as the multilicati!e congruential method. The selection
of the "alues for a# c, m and 8o drastically affects the statistical !ro!erties and the cycle
length
Eg ),
8
.
:*<# a:)<# c:=> and m:)..
?ere integer "alues %ill be bet%een . and @@ because of the modulus m Note that random
integers are being generated rather than random numbers These integers should be uniformly
distributed Aon"ert to numbers in -.#)/ by normali+ing %ith modulus m,
R
i
:8
i
2m
The se'uence of 8i and subse'uent Ri "alues is com!uted as follo%s,
3
Of !rimary im!ortance is uniformity and statistical inde!endence Of secondary im!ortance is
ma1imum density and ma1imum !eriod %ithin the se'uence,
R
i#
i:)#*#B
Note that# the se'uence can only ta7e "alues in,
C.#)2m#*2m#5m4)62m#)D
Thus R
i
is discrete rather than continuous
This is easy to fi1 by choosing large modulus m Ealues such as m:*
>)
4) and m:*
=0
are in
common use in generators a!!earing in many simulation languages6 Ma1imum Density and
Ma1imum !eriod can be achie"ed by the !ro!er choice of a#c#m and 8
.

For m a !o%er of *# say m =2b and c ; .# the longest !ossible !eriod is P : m = 2b, %hich is
achie"ed !ro"ided that c is relati"ely !rime to m 5that is# the greatest common factor of c and m i
s l 6# and :a : l9=7# %here k is an integer
For m a !o%er of *# say m =2b and c = .# the longest !ossible !eriod is P : mG4 = 2b-2,
%hich is achie"ed !ro"ided that the seed 8. is odd and the multi!lier #a# is gi"en by
a:>90H # for some H:.#)#
For m a !rime number and c:.# the longest !ossible !eriod is 3:m4)# %hich is achie"ed
!ro"ided that the multi!lier # a# has the !ro!erty that the smallest integer 7 such that a
7
4)is
di"isible by m is 7: m4)
Eg *,
Iet m : ).* : )..# a : )@# c : .# and X0 = J># and generate a se'uence c random integers using
E'uation
X0 = J>
X1 : 5)@65J>6 mod ).. : ))@< mod ).. = @<
8* : 5)@6 5@<6 mod ).. : )0=> mod ).. : =>
8> : 5)@6 5=>6 mod ).. : 0)< mod ).. : )<
.
.
.
.
(hen m is a !o%er of ).# say m : ).b , the modulo o!eration is
accom!lished by sa"ing the b rightmost 5decimal6 digits
Eg >,
Iet a : <
K
: )J#0.<# m : *
>)
4) : *#)=<#=0>#J=< 5a !rime number6# and c: . These choices
satisfy the conditions that insure a !eriod of P = m 1 Further# s!ecify a seed# XQ = )*>#=K<
The first fe% numbers generated are as follo%s,
8
)
: <
K
5)*>#=K<6 mod 5*
>)
4 )6 : *#.<=#@=)#<@@ mod 5*
>)
4 )6
X
1
= *#.<=#@=)#<@@
R
)
= 8
)
G*
>)
X
2
= <
K
5*#.<=#@=)#<@@6 mod5*
>)
4 )6 : KK@#0<*#)J.
R
2
= 8
*
G*
>)
: .*J.<
8
>
: <
K
5KK@#0<*#)J.6 mod5*
>)
4 )6 : )#J=K#K>K#J)>
4
R
3
= 8
>
G*
>)
: .<JJ*
Notice that this routine di"ides by m 9 ) instead of m L ho%e"er# for sucha large "alue of m # the
effect is negligible
AOMBINED IINEAR AONGRUENTIAI GENERATOR&,
As com!uting !o%er has increased# the com!le1ity of the systems that %e are able to simulate
has also increased One fruitful a!!roach is to combine t%o or more multi!licati"e congruential
generators in such a %ay that the combined generator has good statistical !ro!erties and a longer
!eriod The follo%ing result suggests ho% this can be done,
If (
i# )
# (
i # *
# W
i,k
are any inde!endent# discrete4"alued random "ariables 5not
necessarily identically distributed6# but one of them# say (
i# )
# is uniformly distributed on
the integers . to mi M *# then
is uniformly distributed on the integers . to mi M *

Iet 8
i#)
# 8
i#*
## 8
i#7
be the i4th out!ut from K different multi!licati"e 5c:.6 congruential
generators# %here first generator has modulus m
)
and the multi!lier a
)
chosen so that
the !eriod is m
)
4)

The first generator then !roduces 8

i#)
that are a!!ro1imately uniform distributed on )#B#m
)
4
)

?ence# (
i#)
:8
i#)
4) are a!!ro1imately uniform distributed on .#B#m
)
4*
INEcuyer suggest combined generators of the form,
Notice that the O 54)6$4) Ocoefficient im!licitly !erforms the subtraction 8
i#)4)
L for e1am!le#
$4)
if k = *# then 54)6P58
i 1
4 )6 4 ( - l )
l
( X
i 2
4 )6:Q*
$:)5 4)6
X
i,j
The ma1imum !ossible !eriod for such a generator is
5m) R )65m* R l 6 B 5m7 R )6
*S57 R )6 %hich is achie"ed by the follo%ing generator
Eg ),
For >*4bit com!uters# INEcuyer -)@00/ suggests combining k = 2 generators %ith m) :
*)=<=0>KJ># a)= =..)=# m2 = *)=<=0>>@@# and a2 ==.J@* This leads to the follo%ing
algorithm,
&elect seed 8
)#.
in the range -)# *)=<=0>KJ*/ for the first generator# and seed 8*o in the
range -)#
*)=<=0>>@0/ &et $ :.

E"aluate each indi"idual generator

8
)# $9)
: =..)=8
)#$
mod *)=<=0>KJ>
8
*#$9i
: =.J@*8
*#$
mod *)=<=0>>@@

&et
8
$9)
: ( 8
)# $9)
4 8
*# $9)
6 mod *)=<=0>KJ*

Return
R
$9)
: 8
$9)
G *)=<=0>KJ> # 8
$9)
T .
*)=<=0>KJ> 2 *)=<=0>KJ> 8
$ 9)
: .

&et j = j + ) and go to ste! *

TESTS FOR RANDOM NUMBERS
The desirable !ro!erties of random numbers M uniformity and inde!endence
To insure that these desirable !ro!erties are achie"ed# a number of tests can be !erformed 5the
a!!ro!riate tests ha"e already been conducted for most commercial simulation soft%are6
The tests can be !laced in t%o categories according to the !ro!erties of interest# the first entry
in the list belo% concerns testing for uniformity The second through fifth entries concern
testing for inde!endence
The fi"e ty!es of tests,

Fre'uency Test, Uses the Holmogoro"4&mirnic or the Ahi4&'uare Test to com!are the
distribution of the set of numbers to a uniform distribution

Runs Test, Test the runs u! and do%n or the runs abo"e and belo% the mean by com!arin the
actual "alues to e1!ected "alues The &tatistics for com!arison is the chi4 s'uare test

Autocorrelation Test, Test the correlation bet%een numbers and com!ares the sam!le
correlation to the e1!ected correlation of +ero

Ga! Test, Aounts the number of digits that a!!ear bet%een re!etitions of a !articular digit and
then uses the Holmogoro" &mirno" test to com!are %ith the e1!ected si+ed of the ga!s

3o7er Test, Treat numbers grou!ed together as a !o7er hand Then the hands obtained are
com!ared to %hat is e1!ected using the chi4s'uare test
"RE#UENC$ TE%T%:
A basic test that should al%ays be !erformed to "alidate a ne% generator is the test of
uniformity
T%o different methods of testing are a"ailable They are the Kolmogorov-Smirnov and the !i-
"#$%r& '&"' Both of these tests measure the degree of agreement bet%een the distribution of a
sam!le of generated random numbers and the theoretical uniform distribution Both tests are
based on the null hy!othesis of no significant difference bet%een the sam!le distribution and the
theoretical distribution.

THE &OLMOGORO'(%MIRNO' TE%T, This test com!ares the continuous cdf# F586# of the
uniform distribution to the em!irical cdf# &N516# of the sam!le of N obser"ations By definition#
F516 : 1# . U: 1 U: )
If the sam!le from the random4number generator is R) R*# B # RN# then the em!irical
cdf# &
N
586# is defined by,
&
N
586 :
number of R) R*#BB #Rn %hich are U:
N
8
1
As N becomes larger# &
N
586 should become a better a!!ro1imation to F586 # !ro"ided
that the null hy!othesis is true
The Kolmogorov-Smirnov '&"' is based on the largest absolute de"iation bet%een F516
and &N586 o"er the range of the random "ariable That is it is based on the statistic,
D : ma1 V F516 4 &N516V
For testing against a uniform cdf# the test !rocedure follo%s these ste!s,
1. Ran7 the data from smallest to largest Iet R5i6 denote the i th smallest obser"ation#
so that R 5)6 U: R 5*6 U: BBB U: R 5N6
2. Aom!ute D9 : ma1 ( i)N - R 5i6 *
)U:iU:N
D4 : ma1 ( i)N - R 5i6 *
)U:iU:N
3. Aom!ute D : ma15D9# D46
4. Determine the critical "alue# Da# for the s!ecified significance le"el a and the gi"en
sam!le si+e N
5. If the sam!le statistic D is greater than the critical "alue# Da# the null hy!othesis that
the data are a sam!le from a uniform distribution is re$ected
If D U: Da# conclude that no difference has been detected bet%een the true distribution
of ( R) R*# #BB# Rn * and the uniform distribution

THE CHI(%#UARE TE%T:

The chi4s'uare test uses the sam!le statistic
(here O
i
is the obser"ed number in the i4th class# E
i
is the e1!ected number in the i4th
class# and n is the number of classes
1. Determine Order &tatistics
R
5)6
U:R
5*6
U:BBBU:R
5N6
2.
Di"ided Range R
5N6
4R
5)6
in n e'uidistant inter"als -a
i
#b
i
/# such that each
inter"al
has at least K obser"ations
3. Aalculate for i:)#B#N
4. Aalculate
5.
Determine for significant le"el # 8
*
#n4)
RUNS TESTS
RUN% U) AND RUN% DO*N:
8
2
Aonsider a generator that !ro"ided a set of =. numbers in the follo%ing se'uence, ..0 ..@ .*>
.*@ .=* .KK .K0 .<* .0@ .@) .)) .)J .)0 .>) .=) .K> .<) .<> .<= .0= ..* ..@ .>.
.>* .=K .=< .J@ .<= .@) .@K .)* .)> .*@ .>J .>0 .K= .J0 .0J .00 .@)
Both the Holmogoro"4&mirno" test and the chi4s'uare test %ould indicate that the numbers are
uniformly distributed ?o%e"er# a glance at the ordering sho%s that the numbers are
successi"ely larger in bloc7s of ). "alues If these numbers are rearranged as follo%s# there is
far less reason to doubt their inde!endence,
.=) .J0 .0@ .0= .<= .@) .KK .<) .>J .>.
..@ .<* .0J ..0 .K= ..* .)) .*@ .)J .)0
.00 .@) .@K .J@ ..@ .>0 .*> .>* .@) .K>
.>) .=* .<> .)* .<= .=K .)> .=< .K0 .*@
The runs test e1amines the arrangement of numbers in a se'uence to test the hy!othesis of
inde!endence

E8AM3IE ), &eries of coin Tosses

?TT??TTT?T
Run ) has length ) Run * has lenght *# Run > has length *#
Run = has length ># Run K has length )# Run J has length )
T(O AONAERN& in a Runs Test,
o The number of Runs
o The length of the Runs
An u! run is a se'uence of numbers %hich is succeeded by a larger number A do%n run
is a se'uence of numbers each of %hich is succeeded by a smaller number
If N is the number of numbers in a se'uence# the ma1imum number of runs is N I and the
minimum number of runs is one
If a is the total number of runs in a truly random se'uence# the mean and "ariance of a are
gi"en by
and
W
a
: *N X ) 2 > 4444444444445)6
Y
a
*
: )JN X *@ 2 @. 4444444444445*6
For N > *.# the distribution of a is reasonably a!!ro1imated by a normal distribution# N5 Wa # Y
a
*
6 This a!!ro1imation can be used to test the inde!endence of numbers from a generator In
that case the standardi+ed normal test statistic is de"elo!ed by subtracting the mean from the
obser"ed number of runs# a # and di"iding by the standard de"iation That is# the test statistic is
Z. : a W
a
2 Y
a
&ubstituting E'uation 5)6 for Wa and the s'uare root of E'uation 5*6 for Ya yields Z. :
a 4 -5 *N 4 )62>/ 2 s'rt55)JN X *@6 2 @. 6
%here Zo [ N(0 )6 Failure to re$ect the hy!othesis of inde!endence occur %hen
M
a2*
U: Zo U:

a2*
%here a is the le"el of significance The critical "alues and re$ection region are sho%n in Figure,
RUN% A+O'E AND +ELO* THE MEAN:
Acce!tance of the inde!ence follo%ing the !re"ious test is necessary but not sufficient
condition An inde!endent se'uence should not contain long runs %ith obser"ations abo"e the
mean and belo% the mean
Iet # the total number of runs 5abo"e or belo% the mean6 and n
)
be the number of obser"ations
abo"e the mean and n
*
be the number of obser"ations belo% the mean Note that# the ma1imum
number of runs is N:n
)
9n
*
and the minimum number of runs is )
Gi"en n
)
and n
*
and if n
)
T*. or n
*
T*. # b is a!!ro1imately normal distributed
1. Aalculate number of runs b#
2. Aalculate
3.
Determine acce!tence region -Z
4a2*
#Z
a2*
/ from a N5.#)6 distribution
=
f(X)
=
e-x , x 0
0, x <
0
PROB+EMS
1. G&n&r%'& r%n,om n$m-&r" $"ing lin&%r ongr$&n'i%l m&'!o, .i'! /01234 %154
1634 m1700.
"ol$'ion8
X) : 50 X *< 9 =<6mod ).. : J>! R) : J>").. : ..J>
X* : 50 X J> 9 =<6mod ).. : K)! R* : K)").. : 0.K)
X> : 50 X K) 9 =<6mod ).. : KK! R> : KK").. : 0.KK
RANDOM EARIATE GENERATION
3rocedures for sam!ling from a "ariety of %idely used continuous and discrete distributions
?ere it is assumed that a distribution has been com!letely s!ecified# and %ays are sought to
generate sam!les from this distribution to be used as in!ut to a simulation model Techni'ues
for generating random "ariates# not to gi"e a stateof4the4art sur"ey of the most efficient
techni'ues
TECHNIQUES 8
In"erse transformation techni'ue
Acce!tance4re$ection techni'ue
All these techni'ues assume that a source of uniform 5.#)6 random numbers is a"ailable
R)#R*B %here each R) has !robability density function
!df
fR586: ) # .U: 8 U:)
. # other%ise
cumulati"e distribution function
cdf
fR586: . # 8U.
8 # .U: 8 U: )
) # 8T)
The random "ariables may be either discrete or continuous
IN9ERSE TRANSFORM TECHNIQUE 8
The in"erse transform techni'ue can be used to sam!le from e1!onential# the uniform# the
(eibull# and the triangular distributions and em!irical distributions
Additionally# it is the underlying !rinci!le for sam!ling from a %ide "ariety of discrete
distributions The techni'ue %ill be e1!lained in detail for the e1!onential distribution and then
a!!lied to other distributions It is the most straightfor%ard# but al%ays the most efficient#
techni'ue com!utationally
E,)ONENTIAL DI%TRI+UTION :
The e1!onential distribution# discussed as before has !robability density function 5!df6 gi"en by
f(X)
=
- x f(t) dt = 1 e x, x 0
0, x <
0
and cumulati"e distribution function 5cdf6 gi"en by
The !arameter can be inter!reted as the mean number of occurrences !er time unit
For e1am!le# if interarri"al times 8i # 8*# 8># had an e1!onential distribution %ith rate # then
could be inter!reted as the mean number of arri"als !er time unit# or the arri"al rateV Notice that
for any $
E58i6: )2\
so that is the mean interarri"al time The goal here is to de"elo! a !rocedure for generating "alues
8)#8*#8># B %hich ha"e an e1!onential distribution
The in"erse transform techni'ue can be utili+ed# at least in !rinci!le# for any distribution But it
is most useful %hen the cdf F516# is of such sim!le form that its in"erse# F # can be easily
com!uted A ste!4by4ste! !rocedure for the in"erse transform techni'ue illustrated by me
e1!onential distribution# is as follo%s,
1. Aom!ute the cdf of the desired random "ariable 8 For the e1!onential distribution# the cdf is
F516 : ) M e # 1 T .
2. &et F586 : R on the range of 8 For the e1!onential distribution# it becomes ) X e
4\8
: R on
the range 1 T:. &ince 8 is a random "ariable 5%ith the e1!onential distribution in this
case6# it follo%s that ) 4 is also a random "ariable# here called R As %ill be sho%n later#
R has a uniform distribution o"er the inter"al 5.#)6#
3. &ol"e the e'uation F586 : R for 8 in terms of R For the e1!onential distribution# the
solution !roceeds as follo%s,
) X e
4\1
: R
e
4\1
: ) X R
4\8: ln5) 4 R6
1:4)2\ ln5) X R6 44444444 5)6
Abo"e e'uation is called a random4"ariate generator for the e1!onential distribution
In general# E'uation 5)6 is %ritten as 8:F4)5R 6 Generating a se'uence of "alues is
accom!lished through ste!s =
4. Generate 5as needed6 uniform random numbers R)# R*# R># and com!ute the desired
random
"ariates by 8
i
: F4) 5R
i
6
For the e1!onential case# F 5R6 : 54)2\6ln5)4 R6 by E'uation 5)6# so
that
8
i
: 4)2\ ln 5 ) X R
i
6 4 4444444445*6
for i : )#*#># One sim!lification that is usually em!loyed in E'uation 5*6 is to re!lace
)X R
i
by R
i
to yield
8
i
: 4)2\ ln R
i
4444444445>6
%hich is $ustifyed since both R
i
and )4 R
i
are uniformly distributed on 5.#)6
Table, Generation of E1!onential Eariates 8# %ith Mean )# Gi"en Random Numbers Ri#
I ) * > = K
Ri .)>.J ..=** .JK@< .<@JK .<J@J
8i .)=.. ..=>) ).<0 )K@* )=J0
gi"es a se'uence of random numbers and the com!uted e1!onential "ariates# 8i# gi"en by
E'uation 5*6 %ith a "alue of : ) Figure5a6 is a histogram of *.. "alues# R)#R*#BR*.. from
the uniform distrubition and Figure5b6
Figure, 5a6 Em!irical histogram of *.. uniform random numbersL 5b6 em!irical histogram of
*.. e1!onential "ariatesL
Figure, 5c6 theoretical uniform density on 5.#)6L 5d6 theoretical e1!onential density %ith mean )
Figure5b6 is a histogram of the *.. "alues# 8
)
#8
*
#B#8
*..
# com!uted by E'uation 5*6 Aom!are
these em!irical histograms %ith the theoretical density functions in Figure 5c6 and 5d6
As illustrated here# a histogram is an estimate of the underlying density function
Figure* Gra!hical "ie% of the in"erse transform techni'ue
Figure* gi"es a gra!hical inter!retation of the in"erse transform techni'ue The cdf sho%n is
F516 : )4 e an e1!onential distribution %ith rate To generate a "alue8) %ith cdf F586# first a
random number Ri bet%een . and ) is generated# a hori+ontal line is dra%n from R) to the
gra!h of the cdf# then a "ertical line is dro!!ed to the 1 4a1is to obtain 8)# the desired result
Notice the in"erse relation bet%een R) and 8)# namely
Ri : ) X e X8)
and
8) : 4ln 5 ) X R) 6
In general# the relation is %ritten as
R) : F 5 8 ) 6
and
8) : F 4) 5 R)6
3ic7 a "alue ]A^ and com!ute the cumulati"e !robability
358) U 1.6 : 35R) U F51.66 : F58.6 4444444444445=6
To see the first e'uality in E'uation 5=6# refer to Figure *# %here the fi1ed numbers
1. and F58.6 are dra%n on their res!ecti"e a1es It can be seen that 8) U 1o %hen
and only %hen R) U F58.6 &ince . U F51o6 U )# the second e'uality in E'uation 5=6
follo%s immediately from the fact that R is uniformly distributed on 5.#)6 E'uation
5=6
sho%s that the cdf of 8) is FL hence# 8) has the desired distribution
UNI"ORM DI%TRI+UTION :
Aonsider a random "ariable 8 that is uniformly distributed on the inter"al -a# b/ A
reasonable guess for generating 8 is gi"en by
8 : a 9 5b 4 a6R 444444444444444445K6
R is al%ays a random number on 5.#)6 The !df of 8 is
gi"en by f 516 : )2 5 b4a 6# a _ 1 _ b
.# other%ise
The deri"ation of E'uation 5K6 follo%s ste!s ) through > of E1!onential Distribution,
1. The cdf is gi"en by
F516 : .# 1 U a
5 1 X a 6 2 5 b Xa 6# a _ 1 _ b )# 1 T b
2. &et F586 : 58 4 a625b 4a6 : R
3. &ol"ing for 8 in terms of R yields 8 : a 9 5b M a6R# %hich agrees %ith E'uation 5K6
DI%CRETE DI%TRI+UTION:
All discrete distributions can be generated using the in"erse transform techni'ue# either
numerically through a table4loo7u! !rocedure# or in some cases algebraically %ith the final
generation scheme in terms of a formula Other techni'ues are sometimes used for certain
distributions# such as the con"olution techni'ue for the binomial distribution
E:%m;l& 78 <An Em;iri%l Di"r&'& Di"'ri-$'ion= ,
At the end of the day# the number of shi!ments on the loading doc7 of the I?( Aom!any
5%hose main !roduct is the famous# incredibly huge %idget6 is either .# )# or *# %ith
obser"ed relati"e fre'uency of occurrence of .K.# .>.# and .*.# res!ecti"ely
Internal consultants ha"e been as7ed to de"elo! a model to im!ro"e the efficiency of the
loading and hauling o!erations# and as !art of this model they %ill need to be able to
generate "alues# 8# to re!resent the number of shi!ments on the loading doc7 at the end of
each day The consultants decide to model 8 as a discrete random "ariable %ith distribution
as gi"en in Table belo% and sho%n in Figure
8 3M F586
. .K. .K.
) .>. .0.
* .*. )..
The !robability mass function 5!mf6# 3516 is
gi"en by !5.6: 358 : .6 : .K.
!5)6: 358 : )6 : .>.
!5*6: 358 : *6 : .*.
and the cdf# F516 : 358 U 1 6 # is gi"en by
.# 1 U .
F516 : .K# . _ 1 U )
.0# ) _ 1 U *
). * _ 1
Table of generating the discrete "ariate,
I In!ut n Out!ut 8i
) .K. .
* .0. )
> ).. *
The cdf of a discrete random "ariable al%ays consists of hori+ontal line segments %ith $um!s
of si+e !516 at those !oints# 1# %hich the random "ariable can assume For e1am!le# in
Figure there is a $um! of si+e : .K at 1 : .# of si+e !5l6:.> at 1:)# and of si+e !5*6 : .* at
1:*
&u!!ose that R) : .<> is generated Gra!hically# as illustrated in
Figure
&ince n : .K U R) : .<> U r*:.0# set 8) : 1* : ) The generation scheme is
summari+ed as follo%s,
.# R _ .K
8 : )# .K U R _ .0
*# .0 U R _ ).
E:%m;l& 28 <A Di"r&'& Uni>orm Di"'ri-$'ion=8
Aonsider the discrete uniform distribution on C)#*## 7D %ith !mf and cdf gi"en by !516 :
)27# 1 : )#*# 7#
$
.# 1 U )
)27# )_ 1 U *
*27# * _ 1 U >

F 516 :

74)27#
)#
74) _ 1 U 7
7 _ 1
Iet 1i:i and ri : !5l6 9 BB 9 !51i6 MF51i6 : i27 for i:)#*## 7 Then by using Ine'uality
F 51i4)6 : ri4) U R _ ri : F51i6 4444444444445)6
it can be seen that if the generated random number R
satisfies R i4) : i4) 2 7 U R _ ri : i27 4444444444445*6
then 8 is generated by setting 8 : i No%# Ine'uality 5*6 can be sol"ed
for $, i X ) U R7 _ i
R7 _ i U R7 9) 444444444445>6
Iet -y/ denote the smallest integer T y For e1am!le# -<0*/ : 0# -K)>/ : J and -4)#>*/ :
4) For yT.# -y/ is a function that rounds u! This notation and Ine'uality 5>6 yield a
formula for generating 8# namely
8 : ` R 7a 444444444445=6
For e1am!le# consider generating a random "ariate 8# uniformly distributed on C)#*## ).D
The "ariate# 8# might re!resent the number of !allets to be loaded onto a truc7 Using Table
AI as a source of random numbers# R# and E'uation 5=6 %ith 7 : ). yields This !rocedure
can be modified to generate a discrete uniform random "ariate %ith any range consisting of
consecuti"e integers E1ercise )> as7s the student to de"ise a !rocedure for one such case
E:%m;l& ?8 <T!& G&om&'ri Di"'ri-$'ion=8
Aonsider the geometric distribution %ith !mf
!516 : ! 5 l 4 ! 6 1 # 1 : .#)#*#
%here . U ! U ) Its cdf is
gi"en by F516: Q
1
:.
!5) X !6$
: !C)4 5)4 !6
19)
D 2 ) X 5) X !6
: ) X 5 ) X !6
19)
for 1 : .# )# *# Using the in"erse transform techni'ue# a geometric random "ariable 8
%ill assume the "alue 1 %hene"er
F51 4 )6 : ) 4 5) X!61 U R U ) 4 5) X !6 19) : F516 444444444445)6
%here R is a generated random number assumed . U R U) &ol"ing Ine'uality 5)6 for 1
!roceeds as follo%s,
5)4!6
19)
_ ) X R U 5 ) X ! 6
1
5 1 9 )6ln 5) X !6 _ ln 5) X R 6 U 1 ln5)
X !6 But ) X ! U ) im!lies that ln5)4!6 U . so
that
In 5 ) XR 6 2 ln 5 ) X! 6 4) _ 1 U ln5) X R6 2 ln 5) X !64444444444445*6
Thus# 8:1 for that integer "alue of 1 satisfying Ine'uality 5*6 or in brief using the round4u!
function ` a
8 : ln 5) X R 6 2 ln 5) X ! 6 X ) 4444444444445>6
&ince ! is a fi1ed !arameter# let : Ml2ln5l M !6 Then T . and# by E'uation 5>6# 8 : -4/ It is
an e1!onentially distributed random "ariable %ith mean # so that one %ay of generating a
geometric "ariate %ith !arameter ! is to generate 5by any method6 an e1!onential "ariate
N = n ----------------------
(1)
if and only if
A1 + A2 + + An 1 < A1 + .. + An +
An+1
----------------------
(2)
%ith !arameter# subtract one# and round u!Occasionally# a geometric "ariate 8 is needed
%hich can assume "alues C'# ' 9 )# ' 9 *#D %ith !mf !516 : !5) 4 !6 51 : '# '9)#6 &uch
a "ariate# 8 can be generated# using E'uation 5>6# by 8 : ' 9 ln 5)4R62 ln5) X !6 4)
One of the most common cases is ' : )
ACCEPTANCE-RE@ECTION TECHNIQUE 8
&u!!ose that an analyst needed to de"ise a method for generating random "ariates# 8#
uniformly distributed bet%een )2= and ) One %ay to !roceed %ould be to follo% these
ste!s,
1. Generate a random number R
2. 5a6 If R T )2=# acce!t 8 : 2b# then go to ste! >
5b6 If R U )2=# re$ect 2b# and return to ste! )
3. If another uniform random "ariate on -)2=#)/ is needed# re!eat the !rocedure
beginning at ste! ) If not# sto!
Each time ste! ) is e1ecuted# a ne% random number R must be generated &te! *a is an
cacce!tanced and ste! *b is a Ore$ectionO in this acce!tancere$ection techni'ue To summari+e
the techni'ue# random "ariates 5R6 %ith some distribution 5here uniform on -.#)/6 are
generated until some condition 5R T )2=6 is satisfied (hen the condition is finally satisfied#
the desired random "ariate# 8 5here uniform on -)2=#)/6# can be com!uted 58 : R6 This
!rocedure can be sho%n to be correct by recogni+ing that the acce!ted "alues of R are
conditioned "aluesL that is# R itself does not ha"e the desired distribution# but R conditioned
on the e"ent CR T )2=D does ha"e the desired distribution To sho% this# ta7e )2= U a U b U )L
then
3 5 a U R _ b V _ R _ ) 6 : 3 5a U R _ b 6 2 3 5 _ R _ ) 6 : b X a 2 >2= 44444444445)6
%hich is the correct !robability for a uniform distribution on -)2=# )/ E'uation 5)6 says that
the !robability distribution of 2b# gi"en that R is bet%een )2= and ) 5all other "alues of R are
thro%n out6# is the desired distribution Therefore# if )2= U R U )# set 8 : R
)OI%%ON DI%TRI+UTION :
A 3oisson random "ariable# N# %ith mean a T . has
!mf !5n6 : 35N : n6 : e
4e
e
n
2 nf # n : .#)#*#
BB
but more im!ortant# N can be inter!reted as the number of arri"als from a 3oisson arri"al
!rocess in one unit of time Recall that the inter4 arri"al times# A)# A*# of successi"e
customers are e1!onentially distributed %ith rate a 5ie# a is the mean number of arri"als !er
unit time6L in addition# an e1!onential "ariate can be generated There is a relationshi!
bet%een the 5discrete6 3oisson distribution and the 5continuous6 e1!onential distribution#
namely
E'uation 5)62N : n#
says there %ere e1actly n arri"als during one unit of timeL but relation 5*6 says that the nth
arri"al occurred before time ) %hile the 5n 9 l6st arri"al occurred after time l6 Alearly# these
t%o statements are e'ui"alent 3roceed no% by generating e1!onential interarri"al times
until some arri"al# say n 9 )# occurs after time )L then set N : n
For efficient generation !ur!oses# relation 5*6 is
sim!lified Ai: 5M)2 e 6ln Ri# to obtain
Q i:)n X )2e ln Ri _ ) U Qn9)i:) 4)2e ln Ri
Ne1t multi!ly through by re"erses the sign of the ine'uality# and use the fact that a sum
of logarithms is the logarithm of a !roduct# to get
ln gni:) Ri : Qni:) ln Ri h 4 e T Qn9)i:) ln Ri : ln
gn9)i:) Ri Finally# use the relation eln1:1 for any number 1 to
obtain
gn i:) Ri h e4e T gn9) i:) Ri 4444444444444444444444445>6
%hich is e'ui"alent to relation 5*6The !rocedure for generating a 3oisson
random "ariate# N# is gi"en by the follo%ing ste!s,
1. &et n : .# 3 : )
2. Generate a random number Rn9i and re!lace 3 by 3 iRn9i
3. If 3 U e4.# then acce!t N : n Other%ise# re$ect the current n# increase n by one#
and return to ste! *
U!on com!letion of ste! *# 3 is e'ual to the rightmost e1!ression in relation 5>6 The basic
idea of a re$ection techni'ue is again e1hibitedL if 3 T e
[a
in ste! ># then n is re$ected and
the generation !rocess must !roceed through at least one more trial
?o% many random numbers %ill be re'uired# on the a"erage to generate one !oisson
"ariate# N if N:n# then n9) random numbers are re'uired so the a"erage number is gi"en
by
E5N9)6 : e 9)
(hich is 'uite large if the mean # al!ha# of the !oisson distribution is large
E/AMP+E8
Generate three 3oisson "ariates %ith mean a :4.* First com!ute OO : e
.)*
:
.0)0< Ne1t get a se'uence of random numbers R from and follo% ste!s ) to >
abo"e,
n
R
n9) ! Acce!t2res!ect Result
. .=>K< .=>K< 3Ue
4
5acce!t6 N:.
. .=)=J .=)=J 3Ue
4
5acce!t6 N:.
. .0>K> .0>K> 3T:e
4
5re$ect6
) .@@K* .0>)> 3T:e
4
5re$ect6
* .0..= .JJK= 3Ue
4
5acce!t6 N:*
) &et n : .# 3 : )
* R) : .=>K<# 3 : ) i R) : .=>K<
> &ince 3 : .=>K< U e
4j
: .0)0<# acce!t N : .
&te! )4> 5Ri :.=)=J leads to N : .6
) &et n : .# 3 : )
* R): .0>K># 3 : ) 4 R) : .0>K>
> &ince 3 T e
4
# re$ect n : . and return to ste! * %ith n:)
* R* :.@@K*# 3 : R)R* : .0>)>
> &ince 3 T e
4
# re$ect n : ) and return to ste! * %ith n : *
* R> : .0..=# 3 : R)R*R> : .JJK=
> &ince 3 U e4b# acce!t N : *
Fi"e random numbers# to generate three 3oisson "ariates here 5N : .# and N:*6# but in the
long run to generate# say# )... 3oisson "ariates : .* it %ould re'uire a!!ro1imately )...
5a 9)6 or )*.. random numbers
UNIT J
INP! "#$%&IN'
In()* da*a (+o,ide *-e d+i,in. fo+/e fo+ a 0i1)la*ion 1odel. In *-e
0i1)la*ion of a 2)e)in. 0y0*e1, *y(i/al in()* da*a a+e *-e di0*+i3)*ion0 of
*i1e 3e*4een a++i,al0 and 0e+,i/e *i1e0.

5o+ *-e 0i1)la*ion of a +elia3ili*y 0y0*e1, *-e di0*+i3)*ion of *i1e-

*o=fail)+e of a /o1(onen* i0 an exa1(le of in()* da*a.
!-e+e a+e fo)+ 0*e(0 in *-e de,elo(1en* of a )0ef)l 1odel of in()* da*a6

7olle/* da*a f+o1 *-e +eal 0y0*e1 of in*e+e0*. !-i0 of*en +e2)i+e0 a
0)30*an*ial *i1e and +e0o)+/e /o11i*1en*. nfo+*)na*ely, in 0o1e
0i*)a*ion0 i* i0 no* (o00i3le *o /olle/* da*a.

Iden*ify a (+o3a3ili*y di0*+i3)*ion *o +e(+e0en* *-e in()* (+o/e00.

7-oo0e (a+a1e*e+0 *-a* de*e+1ine a 0(e/i8/ in0*an/e of *-e di0*+i3)*ion

fa1ily. 9-en da*a a+e a,aila3le, *-e0e (a+a1e*e+0 1ay 3e e0*i1a*ed
f+o1 *-e da*a.

%,al)a*e *-e /-o0en di0*+i3)*ion and *-e a00o/ia*ed (a+a1e*e+0 fo+ .ood-of-
8*.
'oodne00-of-8* 1ay 3e e,al)a*ed info+1ally ,ia .+a(-i/al
1e*-od0, o+ fo+1ally ,ia 0*a*i0*i/al *e0*0.
DATA COLLECTION
#ne of *-e 3i..e0* *a0:0 in 0ol,in. a +eal (+o3le1. 'I'# -.a+3a.e-in-
.a+3a.e-o)* ;)..e0*ion0 *-a* 1ay en-an/e and fa/ili*a*e da*a
/olle/*ion6

Plan a-ead6 3e.in 3y a (+a/*i/e o+ (+e-o30e+,in. 0e00ion, 4a*/-

fo+ )n)0)al /i+/)10*an/e0.

Analy<e *-e da*a a0 i* i0 3ein. /olle/*ed6 /-e/: ade2)a/y.

7o13ine -o1o.eneo)0 da*a 0e*0, e... 0)//e00i,e *i1e (e+iod0, d)+in.

*-e 0a1e *i1e (e+iod on 0)//e00i,e day0.

=e a4a+e of da*a /en0o+in.6 *-e 2)an*i*y i0 no* o30e+,ed in i*0

en*i+e*y, dan.e+ of lea,in. o)* lon. (+o/e00 *i1e0.

7-e/: fo+ +ela*ion0-i( 3e*4een ,a+ia3le0, e... 3)ild 0/a**e+ dia.+a1.

7-e/: fo+ a)*o/o++ela*ion.

7olle/* in()* da*a, no* (e+fo+1an/e da*a.

IDENTIFYING THE DISTRIBUTION
"e*-od0 fo+ 0ele/*in. fa1ilie0 of in()* di0*+i3)*ion0 4-en da*a a+e a,aila3le.
HISTOGRAM:

A f+e2)en/y di0*+i3)*ion o+ -i0*o.+a1 i0 )0ef)l in de*e+1inin. *-e 0-a(e of a

di0*+i3)*ion

!-e n)13e+ of /la00 in*e+,al0 de(end0 on6

o !-e n)13e+ of o30e+,a*ion0
o !-e di0(e+0ion of *-e da*a
o ;)..e0*ed6 *-e 02)a+e +oo* of *-e 0a1(le 0i<e

5o+ /on*in)o)0 da*a6

7o++e0(ond0 *o *-e (+o3a3ili*y den0i*y f)n/*ion of a *-eo+e*i/al
di0*+i3)*ion

5o+ di0/+e*e da*a6

7o++e0(ond0 *o *-e (+o3a3ili*y 1a00 f)n/*ion

If fe4 da*a (oin*0 a+e a,aila3le6 /o13ine ad>a/en* /ell0 *o eli1ina*e

*-e +a..ed a((ea+an/e of *-e -i0*o.+a1.

?e-i/le A++i,al %xa1(le6 N)13e+ of ,e-i/le0 a++i,in. a* an

in*e+0e/*ion 3e*4een @ a1 and @605 a1 4a0 1oni*o+ed fo+ 100
+ando1 4o+:day0.

!-e+e a+e a1(le da*a, 0o *-e -i0*o.+a1 1ay -a,e a /ell fo+ ea/-
(o00i3le ,al)e in *-e da*a +an.e.
SELECTING THE FAMILY OF DISTRIBUTIONS:
A fa1ily of di0*+i3)*ion0 i0 0ele/*ed 3a0ed on6

!-e /on*ex* of *-e in()* ,a+ia3le

;-a(e of *-e
-i0*o.+a1 5+e2)en*ly
en/o)n*e+ed
di0*+i3)*ion06

%a0ie+ *o analy<e6 ex(onen*ial, no+1al and Poi00on

Aa+de+ *o analy<e6 3e*a, .a11a and 9ei3)ll

0e *-e (-y0i/al 3a0i0 of *-e di0*+i3)*ion a0 a .)ide, fo+ exa1(le6

Binomial : "odel0 *-e n)13e+ of 0)//e00e0 in n *+ial0, 4-en *-e

*+ial0 a+e inde(enden* 4i*- /o11on 0)//e00 (+o3a3ili*y, p; fo+
exa1(le, *-e n)13e+ of defe/*i,e /o1()*e+ /-i(0 fo)nd in a lo* of n
/-i(0.

Negative Binomial in!l"#e$ t%e geomet&i!

#i$t&i'"tion( : "odel0 *-e n)13e+ of *+ial0 +e2)i+ed *o
a/-ie,e k 0)//e00e0B fo+ exa1(le, *-e n)13e+ of /o1()*e+
/-i(0 *-a* 4e 1)0* in0(e/* *o 8nd 4 defe/*i,e /-i(0.

)oi$$on : "odel0 *-e n)13e+ of inde(enden* e,en*0 *-a* o//)+ in

a 8xed a1o)n* of *i1e o+ 0(a/e6 fo+ exa1(le, *-e n)13e+ of
/)0*o1e+0 *-a* a++i,e *o a 0*o+e d)+in. 1
-o)+, o+ *-e n)13e+ of defe/*0 fo)nd in 30 02)a+e 1e*e+0 of 0-ee*
1e*al.

No&mal : "odel0 *-e di0*+i3)*ion of a (+o/e00 *-a* /an 3e *-o).-* of a0

*-e 0)1 of a n)13e+ of /o1(onen* (+o/e00e0B fo+ exa1(le, *-e *i1e *o
a00e13le a (+od)/* 4-i/- i0 *-e 0)1 of *-e *i1e0 +e2)i+ed fo+ ea/-
a00e13ly o(e+a*ion. No*i/e *-a* *-e no+1al di0*+i3)*ion ad1i*0 ne.a*i,e
,al)e0, 4-i/- 1ay 3e-i1(o00i3le fo+ (+o/e00 *i1e0.

Logno&mal : "odel0 *-e di0*+i3)*ion of a (+o/e00 *-a* /an 3e *-o).-* of

a0 *-e (+od)/* of (1eanin. *o 1)l*i(ly *o.e*-e+) a n)13e+ of /o1(onen*
(+o/e00e0B fo+ exa1(le, *-e +a*e of +e*)+n on an in,e0*1en*, 4-en
in*e+e0* i0 /o1(o)nded, i0 *-e (+od)/* of *-e +e*)+n0 fo+ a n)13e+ of
(e+iod0.

E*+onential : "odel0 *-e *i1e 3e*4een inde(enden* e,en*0, o+ a (+o/e00

*i1e 4-i/- i0 1e1o+yle00 (:no4in. -o4 1)/- *i1e -a0 (a00ed .i,e0 no
info+1a*ion a3o)* -o4 1)/-
addi*ional *i1e 4ill (a00 3efo+e *-e (+o/e00 i0 /o1(le*e)B fo+
exa1(le, *-e *i1e0 3e*4een *-e a++i,al0 of a la+.e n)13e+ of
/)0*o1e+0 4-o a/* inde(enden*ly of ea/- o*-e+.

Gamma : An ex*+e1ely Cexi3le di0*+i3)*ion )0ed *o 1odel

nonne.a*i,e +ando1 ,a+ia3le0. !-e .a11a /an 3e 0-if*ed a4ay
f+o1 0 3y addin. a /on0*an*.

Beta : An ex*+e1ely Cexi3le di0*+i3)*ion )0ed *o 1odel 3o)nded (8xed

)((e+ and lo4e+ li1i*0) +ando1 ,a+ia3le0. !-e 3e*a /an 3e 0-if*ed a4ay
f+o1 0 3y addin. a /on0*an* and /an -a,e a la+.e+ +an.e *-an D0,1E 3y
1)l*i(lyin. 3y a /on0*an*.

E&lang : "odel0 (+o/e00e0 *-a* /an 3e ,ie4ed a0 *-e 0)1 of 0e,e+al

ex(onen*ially di0*+i3)*ed (+o/e00e0B fo+ exa1(le, a /o1()*e+ ne*4o+:
fail0 4-en a /o1()*e+ and *4o 3a/:)( /o1()*e+0 fail, and ea/- -a0 a
*i1e *o fail)+e *-a* i0 ex(onen*ially di0*+i3)*ed. !-e %+lan. i0 a 0(e/ial
/a0e of *-e .a11a.

,ei'"ll : "odel0 *-e *i1e *o fail)+e fo+ /o1(onen*0B fo+ exa1(le, *-e *i1e
*o fail)+e fo+ a di0: d+i,e. !-e ex(onen*ial i0 a 0(e/ial /a0e of *-e 9ei3)ll.

Di$!&ete o& Contin"o"$ Uni-o&m "odel0 /o1(le*e )n/e+*ain*y , 0in/e

all o)*/o1e0 a+e e2)ally li:ely. !-i0 di0*+i3)*ion i0 of*en o,e+)0ed 4-en
*-e+e a+e no da*a.

T&iang"la& "odel0 a (+o/e00 4-en only *-e +nini1)1, 1o0*-li:ely, and

1axi1)1 ,al)e0 of *-e di0*+i3)*ion a+e :no4nB fo+ exa1(le, *-e 1ini1)1,
1o0*- li:ely, and 1axi1)1 *i1e +e2)i+ed *o *e0* a (+od)/*.

Em+i&i!al Fe0a1(le0 f+o1 *-e a/*)al da*a /olle/*edB of*en )0ed 4-en
no *-eo+e*i/al di0*+i3)*ion 0ee10 a((+o(+ia*e.
QUANTILE-QUANTILE PLOTS:

Q-Q (lo* i0 a )0ef)l *ool fo+ e,al)a*in. di0*+i3)*ion 8*.

If X i0 a +ando1 ,a+ia3le 4i*- /df F, *-en *-e q-2)an*ile of X i0 *-e 0)/- *-a*
F( ) = P(X ) = q, for 0 < q < 1
9-en F -a0 an in,e+0e, = F-1(q)

&e* Gxi, i = 1,2, ., nH 3e a 0a1(le of da*a f+o1 X and Gyj, j = 1,2,,

nH 3e *-e o30e+,a*ion0 in a0/endin. o+de+6
k
$
is a!!ro1imately F
4)
((>-0.5)In).
4-e+e j i0 *-e +an:in. o+
o+de+ n)13e+.
!-e (lo* of J
>
,e+0)0 5
-1
i0
o A((+oxi1a*ely a 0*+ai.-* line if F i0 a 1e13e+ of an
a((+o(+ia*e fa1ily of di0*+i3)*ion0.
o !-e line -a0 0lo(e 1 if F i0 a 1e13e+ of an a((+o(+ia*e fa1ily
of di0*+i3)*ion0 4i*- a((+o(+ia*e (a+a1e*e+ ,al)e0.

%xa1(le6 7-e/: 4-e*-e+ *-e doo+ in0*alla*ion *i1e0 follo40 a no+1al

di0*+i3)*ion.
!-e o30e+,a*ion0 a+e no4 o+de+ed f+o1 01alle0* *o la+.e0*6
. val"e . val"e / 0al"e
1 KK.55 L KK.K8 1
1
100.2L
2 KK.5L @ 100.02 1
2
100.2@
3 KK.L2 8 100.0L 1
3
100.33
4 KK.L5 K 100.1@ 1
4
100.41
5 KK.@K 1
0
100.23 1
5
100.4@
Y
j
a+e (lo**ed ,e+0)0 F
-1
( (j-0.5)/n) 4-e+e F -a0 a no+1al di0*+i3)*ion
4i*- *-e 0a1(le
1ean (99.99 sec) and 0a1(le ,a+ian/e (0.2822
sec2).
7-e/: 4-e*-e+ *-e doo+ in0*alla*ion *i1e0 follo4 a no+1al di0*+i3)*ion.

7on0ide+ *-e follo4in. 4-ile e,al)a*in. *-e linea+i*y of a q-q (lo*6

o !-e o30e+,ed ,al)e0 ne,e+ fall exa/*ly on a 0*+ai.-* line.
o !-e o+de+ed ,al)e0 a+e +an:ed and -en/e no* inde(enden*,
)nli:ely fo+ *-e (oin*0 *o 3e 0/a**e+ed a3o)* *-e line.
o ?a+ian/e of *-e ex*+e1e0 i0 -i.-e+ *-an *-e 1iddle. &inea+i*y
of *-e (oin*0 in *-e 1iddle of *-e (lo* i0 1o+e i1(o+*an*.

Q-Q (lo* /an al0o 3e )0ed *o /-e/: -o1o.enei*y.

o 7-e/: 4-e*-e+ a 0in.le di0*+i3)*ion /an +e(+e0en* 3o*- 0a1(le 0e*0.
o Plo**in. *-e o+de+ ,al)e0 of *-e *4o da*a 0a1(le0 a.ain0* ea/-
o*-e+.
)ARA1ETER ESTI1ATION
Af*e+ a fa1ily of di0*+i3)*ion0 -a0 3een 0ele/*ed, *-e nex* 0*e( i0 *o
e0*i1a*e *-e (a+a1e*e+0 of *-e di0*+i3)*ion.
Preliminary Sai!i"!: Sam#le Mean an$ Sam#le %arian"e:

If o30e+,a*ion0 in a 0a1(le of 0i<e n a+e X1, X2, , Xn (di0/+e*e o+

/on*in)o)0), *-e 0a1(le 1ean and ,a+ian/e a+e6

If *-e da*a a+e di0/+e*e and -a,e 3een .+o)(ed in a f+e2)en/y di0*+i3)*ion6
4-e+e !j i0 *-e o30e+,ed f+e2)en/y of ,al)e Xj.

9-en +a4 da*a a+e )na,aila3le (da*a a+e .+o)(ed in*o /la00 in*e+,al0), *-e
a((+oxi1a*e 0a1(le 1ean and ,a+ian/e a+e6
4-e+e !j i0 *-e o30e+,ed f+e2)en/y of in *-e j*- /la00 in*e+,al, "j i0 *-e
1id(oin* of *-e
j*- in*e+,al, and c i0 *-e n)13e+ of /la00 in*e+,al0.

A (a+a1e*e+ i0 an )n:no4n /on0*an*, 3)* an e0*i1a*o+ i0 a 0*a*i0*i/.

?e-i/le A++i,al %xa1(le6

. val"e . val"e / 0al"e
1 KK.55 L KK.K8 1
1
100.2L
2 KK.5L @ 100.02 1
2
100.2@
3 KK.L2 8 100.0L 1
3
100.33
4 KK.L5 K 100.1@ 1
4
100.41
5 KK.@K 1
0
100.23 1
5
100.4@
!a3le a3o,e /an 3e analy<ed *o o3*ain6

!-e -i0*o.+a1 0)..e0*0 X *o -a,e a Po00ion di0*+i3)*ion6

o Ao4e,e+, no*e *-a* 0a1(le 1ean i0 no* e2)al *o 0a1(le ,a+ian/e.
o Fea0on6 ea/- e0*i1a*o+ i0 a +ando1 ,a+ia3le, i0 no* (e+fe/*.
S&''e!e$ E!ima(r!:

N)1e+i/al e0*i1a*e0 of *-e di0*+i3)*ion (a+a1e*e+0 a+e needed *o +ed)/e

*-e fa1ily of di0*+i3)*ion0 *o a 0(e/i8/ di0*+i3)*ion and *o *e0* *-e
+e0)l*in. -y(o*-e0i0.

!-e0e e0*i1a*o+0 a+e *-e 1axi1)1-li:eli-ood e0*i1a*o+0 3a0ed on *-e

+a4 da*a. (If *-e da*a a+e in /la00 in*e+,al0, *-e0e e0*i1a*o+0 1)0* 3e
1odi8ed.)

!-e *+ian.)la+ di0*+i3)*ion i0 )0)ally e1(loyed 4-en no da*a a+e a,aila3le,

4i*- *-e (a+a1e*e+0 o3*ained f+o1 ed)/a*ed .)e00e0 fo+ *-e 1ini1)1,
1o0* li:ely, and 1axi1)1 (o00i3le ,al)eM0B *-e )nifo+1 di0*+i3)*ion 1ay
al0o 3e )0ed in *-i0 4ay if only 1ini1)1 and 1axi1)1 ,al)e0 a+e
a,aila3le.

%xa1(le0 of *-e )0e of *-e e0*i1a*o+06 !-e (a+a1e*e+ i0 an )n:no4n

/on0*an*, 3)* *-e e0*i1a*o+ i0 a 0*a*i0*i/ o+ +ando1 ,a+ia3le 3e/a)0e i*
de(end0 on *-e 0a1(le ,al)e0. !o di0*in.)i0- *-e *4o /lea+ly, if, 0ay, a
(a+a1e*e+ i0 deno*ed 3y a, *-e e0*i1a*o+ 4ill 3e deno*ed 3y
GOODNESS2OF2
FIT TESTS
!-e0e *4o *e0*0 a+e a((lied in *-i0 0e/*ion *o -y(o*-e0e0 a3o)*
di0*+i3)*ional fo+10 of in()* da*a.

Nol1o.o+o,-;1i+no, *e0*

7-i-02)a+e *e0*
'oodne00-of-8* *e0*0 (+o,ide -el( f)ll .)idan/e fo+
e,al)a*in. *-e 0)i*a3ili*y of a (o*en*ial in()* 1odel.
I* i0 e0(e/ially i1(o+*an* *o )nde+0*and *-e eOe/* of 0a1(le 0i<e. If ,e+y
li**le da*a a+e a,aila3le, *-en a .oodne00-of-8* *e0* i0 )nli:ely *o +e>e/*
any /andida*e di0*+i3)*ionB 3)* if a lo* of da*a a+e a,aila3le, *-en a
.oodne00-of-8* *e0* 4ill li:ely +e>e/* all /andida*e di0*+i3)*ion.
CHI-
SQUARE
TEST:
7o1(a+in. *-e -i0*o.+a1 of *-e da*a *o *-e 0-a(e of *-e /andida*e
den0i*y o+ 1a00 f)n/*ion

?alid fo+ la+.e 0a1(le 0i<e0 4-en (a+a1e*e+0 a+e e0*i1a*ed 3y 1axi1)1
li:eli-ood.

=y a++an.in. *-e n o30e+,a*ion0 in*o a 0e* of k /la00 in*e+,al0 o+ /ell0, *-e

*e0* 0*a*i0*i/0 i06
#
i
i0 *-e o30e+,ed f+e2)en/y,
%
i
i0 %x(e/*ed 5+e2)en/y #i = n$pi 4-e+e pi i0 *-e *-eo+e*i/al
(+o3. of *-e i*-
in*e+,al. %&''es(e) *ini"&" = 5.
!-i0 a((+oxi1a*ely follo40 *-e /-i-02)a+e di0*+i3)*ion 4i*- k-s-1
de.+ee0 of f+eedo1,
4-e+e 0 = N)13e+ of (a+a1e*e+0 of *-e -y(o*-e0i<ed di0*+i3)*ion
e0*i1a*ed 3y *-e 0a1(le 0*a*i0*i/0.

!-e -y(o*-e0i0 of a /-i-02)a+e *e0* i06

o +0, !-e +ando1 ,a+ia3le, X, /onfo+10 *o *-e di0*+i3)*ional
a00)1(*ion 4i*- *-e (a+a1e*e+(0) .i,en 3y *-e e0*i1a*e(0).
o +1, !-e +ando1 ,a+ia3le X doe0 no* /onfo+1.

If *-e di0*+i3)*ion *e0*ed i0 di0/+e*e and /o13inin. ad>a/en* /ell i0 no*

+e2)i+ed (0o *-a*
#i - 1ini1)1 +e2)i+e1en*)6
o %a/- ,al)e of *-e +ando1 ,a+ia3le 0-o)ld 3e a /la00 in*e+,al,
)nle00 /o13inin. i0 ne/e00a+y, and
.i = .(X/) = .(X =Xi)

If *-e di0*+i3)*ion *e0*ed i0 /on*in)o)06

4-e+e 0i-1 and 0i a+e *-e end(oin*0 of *-e i(1 /la00 in*e+,al and !(x) i0
*-e a00)1ed (df,
F(x) i0 *-e a00)1ed /df.

Fe/o11ended n)13e+ of /la00 in*e+,al0 (k)6

Sam+le $i3e4 n N"m'e& o- !la$$
inte&val$4 5 2
0
$o no* )0e *-e /-i-02)a+e
*e0* 5
0
5 *o 10
100 10 *o 20
P100 n
1I2
*o
nI5
Cauton! "fferent #rou$n# of data (%e%, k) &an affe&t t'e '($ot'e)) te)tn# re)u*t%

?e-i/le A++i,al %xa1(le6

o +0, *-e +ando1 ,a+ia3le i0 Poi00on di0*+i3)*ed.
o +1, *-e +ando1 ,a+ia3le i0 no* Poi00on di0*+i3)*ed.
$e.+ee of f+eedo1 i0 k-s-1 = 2-1-1 = 5, -en/e, *-e -y(o*-e0i0 i0
+e>e/*ed a* *-e 0.05 le,el of 0i.ni8/an/e.
CHI-SQUARE TEST )ITH EQUAL PROBABILITIES:

If a /on*in)o)0 di0*+i3)*ional a00)1(*ion i0 3ein. *e0*ed, /la00 in*e+,al0

*-a* a+e e2)al in (+o3a3ili*y +a*-e+ *-an e2)al in 4id*- of in*e+,al 0-o)ld
3e )0ed.

nfo+*)na*ely, *-e+e i0 a0 ye* no 1e*-od fo+ de*e+ 1inin. *-eB

(+o3a3ili*y a00o/ia*ed 4i*- ea/- in*e+,al *-a* 1axi1i<e *-eB (o4e+ of a
*e0* o f a .i,en 0i<e.
%i = n ( i 5
;)30*i*)*in. fo+ ( i yield0 nI: 5 and 0ol,in. fo+ : yield0
: nI5.
*OLMOGORO%-SMIRNO% TEST:

5o+1ali<e *-e idea 3e-ind exa1inin. a q-q (lo*.

!-e *e0* /o1(a+e0 *-e /on*in)o)0 /df, F(x), of *-e -y(o*-e0i<ed

di0*+i3)*ion 4i*- *-e e1(i+i/al /df, %3(x), of *-e 3 0a1(le o30e+,a*ion0.

=a0ed on *-e 1axi1)1 diOe+en/e 0*a*i0*i/06

4 = "0x5 F(x) - %3(x)5

A 1o+e (o4e+f)l *e0*, (a+*i/)la+ly )0ef)l 4-en6

o ;a1(le 0i<e0 a+e 01all,
o No (a+a1e*e+0 -a,e 3een e0*i1a*ed f+o1 *-e da*a.

9-en (a+a1e*e+ e0*i1a*e0 -a,e 3een 1ade6

o 7+i*i/al ,al)e0 if 3ia0ed, *oo la+.e.
o "o+e /on0e+,a*i,e, i.e., 01alle+ !y(e I e++o+ *-an 0(e/i8ed.

;)((o0e *-a* 50 in*e+a++ia,al *i1e0 (in 1in)*e0) a+e /olle/*ed o,e+ *-e
follo4in. 100 1in)*e in*e+,al (a++an.ed in o+de+ of o//)++en/e) 6
0.44 0.53 2.04 2.@4 2.00 0.30 2.54 0.52 2.02 1.8K 1.53 0.21
2.80 0.04 1.35 8.32 2.34 1.K5 0.10 1.42 0.4L 0.0@ 1.0K 0.@L
5.55 3.K3 1.0@ 2.2L 2.88 0.L@ 1.12 0.2L 4.5@ 5.3@ 0.12 3.1K
1.L3 1.4L 1.08 2.0L 0.85 0.83 2.44 2.11 3.15 2.K0 L.58 0.L4
Ao 6 *-e in*e+a++i,al *i1e0 a+e ex(onen*ially
di0*+i3)*ed A16 *-e in*e+a++i,al *i1e0 a+e
no* ex(onen*ially di0*+i3)*ed
!-e da*a 4e+e /olle/*ed o,e+ *-e in*e+,al 0 *o ! = 100 1in. I* /an
3e 0-o4n *-a* if *-e under*(n# d)tr+uton of nterarr,a* t-e) . /1, /2,
0 ) ex$onenta*, t'e a++i,al *i1e0 a+e )nifo+1ly di0*+i3)*ed on *-e
in*e+,al (0,!).

/'e arr,a* t-e) /1, /1+/2, /1+/2+/1,%%,/1+%%+/20 are o+taned +( addn#

in*e+a++i,al *i1e0.

3n a (0,1) nter,a*, t'e $ont) 4** +e 5/16/, (/1+/2)6/,%%,(/1+%+/20)6/7%

0.0044 #.00K@ 0.0301 0.05@5 0.0@@5 0.0805 0.105K 0.1111
0.1313 0.1502
0.1L55 0.1L@L 0.1K5L 0.1KL0 0.20K5 0.2K2@ 0.31L1 0.335L
0.33LL 0.3508
0.3553 0.35L1 0.3L@0 0.3@4L 0.4300 0.4LK4 0.4@KL 0.502@
0.5315 0.5382
0.54K4 0.5520 0.5K@@ 0.L514 0.L52L 0.L845 0.@008 0.@154
0.@2L2 0.@4L8
0.@553 0.@L3L 0.@880 0.@K82 0.820L 0.841@ 0.8@32 0.K022
0.KL80 0.K@44
P- %ALUES AND +BEST FITS,:
p-607&e fo+ *-e *e0* 0*a*i0*i/0
o !-e 0i.ni8/an/e le,el a* 4-i/- one 4o)ld >)0* +e>e/* +0 fo+ *-e
.i,en *e0* 0*a*i0*i/ ,al)e.
o A 1ea0)+e of 8*, *-e la+.e+ *-e 3e**e+
o &a+.e p-607&e6 .ood 8*
o ;1all p-607&e6 (oo+ 8*
?e-i/le A++i,al %xa1(le6
o +06 da*a i0 Po00ion
o
!e0* 0*a*i0*i/06 8
0
2
[email protected] , 4i*- 5 de.+ee0 of f+eedo1 p-607&e
= 0.00008, 1eanin.
4e 4o)ld +e>e/* +0 4i*- 0.00008
0i.ni8/an/e le,el, -en/e Poi00on i0 a (oo+ 8*.
"any 0of*4a+e )0e p-607&e a0 *-e +an:in. 1ea0)+e *o a)*o1a*i/ally
de*e+1ine *-e 9+e)t ft:% /'n#) to +e &autou) a3o)*6
o ;of*4a+e 1ay no* :no4 a3o)* *-e (-y0i/al 3a0i0 of *-e da*a,
di0*+i3)*ion fa1ilie0 i* 0)..e0*0 1ay 3e ina((+o(+ia*e.
o 7lo0e /onfo+1an/e *o *-e da*a doe0 no* al4ay0 lead *o *-e
1o0* a((+o(+ia*e in()* 1odel.
o p-607&e doe0 no* 0ay 1)/- a3o)* 4-e+e *-e la/: of 8* o//)+0.
Fe/o11ended6 al4ay0 in0(e/* *-e a)*o1a*i/ 0ele/*ion )0in. .+a(-i/al
1e*-od0.
FITTING A NON-STATIONARY POISSON PROCESS:
5i**in. a N;PP *o a++i,al da*a i0 diQ/)l*, (o00i3le a((+oa/-e06
5i* a ,e+y Cexi3le 1odel 4i*- lo*0 of (a+a1e*e+0 o+
A((+oxi1a*e /on0*an* a++i,al +a*e o,e+ 0o1e 3a0i/ in*e+,al of *i1e, 3)*
,a+y i* f+o1 *i1e in*e+,al *o *i1e in*e+,al.
;)((o0e 4e need *o 1odel a++i,al0 o,e+ *i1e D0,!E, o)+ a((+oa/- i0 *-e
1o0* a((+o(+ia*e 4-en 4e /an6
#30e+,e *-e *i1e (e+iod +e(ea*edly and
7o)n* a++i,al0 I +e/o+d a++i,al *i1e0.
!-e e0*i1a*ed a++i,al +a*e d)+in. *-e i*- *i1e (e+iod i06
4-e+e n = n)13e+ of o30e+,a*ion (e+iod0, ;( = (i"e in(e9607 7en'(1
:ij = n)13e+ of a++i,al0 d)+in. *-e i*- *i1e in*e+,al on *-e j*-
o30e+,a*ion (e+iod %xa1(le6 $i,ide a 10--o)+ 3)0ine00 day D80",;p"E
in*o e2)al in*e+,al0 k = 20 4-o0e len.*- ;( =
<, and o30e+,e o,e+ n =3 day0
SELECTING IN)UT 1ODEL ,ITHOUT DATA:
If da*a i0 no* a,aila3le, 0o1e (o00i3le 0o)+/e0 *o o3*ain info+1a*ion a3o)*
*-e (+o/e00 a+e6
%n.inee+in. da*a6 of*en (+od)/* o+ (+o/e00 -a0 (e+fo+1an/e +a*in.0
(+o,ided 3y *-e 1an)fa/*)+e+ o+ /o1(any +)le0 0(e/ify *i1e o+
(+od)/*ion 0*anda+d0.
%x(e+* o(*ion6 (eo(le 4-o a+e ex(e+ien/ed 4i*- *-e (+o/e00 of 0i1ila+
(+o/e00e0, of*en, *-ey /an (+o,ide o(*i1i0*i/, (e00i1i0*i/ and 1o0*-li:ely
*i1e0, and *-ey 1ay :no4 *-e ,a+ia3ili*y a0 4ell.
P-y0i/al o+ /on,en*ional li1i*a*ion06 (-y0i/al li1i*0 on (e+fo+1an/e,
li1i*0 o+ 3o)nd0 *-a* na++o4 *-e +an.e of *-e in()* (+o/e00.
!-e na*)+e of *-e (+o/e006 I* /an 3e )0ed *o >)0*ify a (a+*i/)la+ /-oi/e
e,en 4-en no da*a a+e a,aila3le.
!-e )nifo+1, *+ian.)la+, and 3e*a di0*+i3)*ion0 a+e of*en )0ed a0
in()* 1odel0. %xa1(le6 P+od)/*ion (lannin. 0i1)la*ion.
In()* of 0ale0 ,ol)1e of ,a+io)0 (+od)/*0 i0 +e2)i+ed, 0ale0(e+0on of
(+od)/* XJR 0ay0 *-a*6
o No fe4e+ *-an 1,000 )ni*0 and no 1o+e *-an 5,000 )ni*0 4ill 3e
0old.
o 'i,en -e+ ex(e+ien/e, 0-e 3elie,e0 *-e+e i0 a 90= /-an/e of 0ellin.
1o+e *-an 2,000
)ni*0, a 25= /-an/e of 0ellin. 1o+e *-an 2,500 )ni*0, and only a
1= /-an/e of 0ellin.
1o+e *-an 8,500 )ni*0.
!+an0la*in. *-e0e info+1a*ion in*o a /)1)la*i,e (+o3a3ili*y of 3ein. le00
*-an o+ e2)al *o *-o0e .oal0 fo+ 0i1)la*ion in()*6
1ULTI0ARIATE AND TI1E2SERIES IN)UT 1ODELS
!-e +ando1 ,a+ia3le0 (+e0en*ed 4e+e /on0ide+ed *o 3e inde(enden* of
any o*-e+ ,a+ia3le0 4i*-in *-e /on*ex* of *-e (+o3le1. Ao4e,e+,
,a+ia3le0 1ay 3e +ela*ed, and if *-e ,a+ia3le0 a((ea+ in a 0i1)la*ion
1odel a0 in()*0, *-e +ela*ion0-i( 0-o)ld 3e de*e+1ined and *a:en in*o
/on0ide+a*ion.
MULTI%ARIATE:
5o+ exa1(le, lead *i1e and ann)al de1and fo+ an in,en*o+y 1odel,
in/+ea0e in de1and +e0)l*0 in lead *i1e in/+ea0e, -en/e ,a+ia3le0 a+e
de(enden*.
TIME-SERIES:
5o+ exa1(le, *i1e 3e*4een a++i,al0 of o+de+0 *o 3)y and 0ell 0*o/:0, 3)y
and 0ell o+de+0 *end *o a++i,e in 3)+0*0, -en/e, *i1e0 3e*4een a++i,al0
a+e de(enden*.
CO%ARIANCE AND CORRELATION:
7on0ide+ *-e 1odel *-a* de0/+i3e0 +ela*ion0-i( 3e*4een X1 and X26
< = 0, X1 and X2 a+e 0*a*i0*i/ally inde(enden*
< - 0, X1 and X2 *end *o 3e a3o,e o+ 3elo4 *-ei+ 1ean0 *o.e*-e+
< > 0, X1 and X2 *end *o 3e on o((o0i*e 0ide0
of *-ei+ 1ean0 7o,a+ian/e 3e*4een X1 and X2 6
7o++ela*ion 3e*4een X1 and X2 (,al)e0 3e*4een -1 and 1)6
!-e /lo0e+ = i0 *o -1 o+ 1, *-e 0*+on.e+ *-e linea+ +ela*ion0-i( i0 3e*4een X1
and X2.
A *i1e 0e+ie0 i0 a 0e2)en/e of +ando1 ,a+ia3le0 X1, X2, X, , a+e
iden*i/ally di0*+i3)*ed (0a1e 1ean and ,a+ian/e) 3)* de(enden*.
/o,(X(, X(?1) i0 *-e 70'-1 0&(@c@609i0nce
/o++(X(, X(?1) i0 *-e 70'-1 0&(@c@99e70(i@n
If *-e a)*o/o,a+ian/e ,al)e de(end0 only on 1 and no* on (, *-e *i1e 0e+ie0
i0 /o,a+ian/e 0*a*iona+y.
MULTI%ARIATE INPUT MODELS:
If X1 and X2 a+e no+1ally di0*+i3)*ed, de(enden/e 3e*4een *-e1 /an
3e 1odeled 3y *-e
3i,a+ia*e no+1al di0*+i3)*ion 4i*- >
1
, >
2
, ?
1
2
, ?
2
2
and
/o++ela*ion =
!o %0*i1a*e >
1
, >
2
, ?
1
2
, ?
2
2
, 9@ara-eter A)t-aton: i0 )0ed.
!o %0*i1a*e =, 0)((o0e 4e -a,e n inde(enden* and iden*i/ally
di0*+i3)*ed (ai+0 (X11, X21), (X12, X22), (X1n, X2n), *-en6
TIME-SERIES INPUT MODELS:
If X1, X2, X, i0 a 0e2)en/e of iden*i/ally di0*+i3)*ed, 3)* de(enden* and
/o,a+ian/e-0*a*iona+y +ando1 ,a+ia3le0, *-en 4e /an +e(+e0en* *-e
(+o/e00 a0 follo406
A)*o+e.+e00i,e o+de+-1 1odel, AF(1)
%x(onen*ial a)*o+e.+e00i,e o+de+-1 1odel, %AF(1)
=o*- -a,e *-e /-a+a/*e+i0*i/0 *-a*6
A0'-1 a)*o/o++ela*ion de/+ea0e0 .eo1e*+i/ally a0 *-e la.
in/+ea0e0, -en/e, o30e+,a*ion0 fa+ a(a+* in *i1e a+e
nea+ly inde(enden*.
AR-./ ime-!erie! in#& m($el!:
7on0ide+ *-e *i1e-0e+ie0 1odel6
If X1 i0 /-o0en a((+o(+ia*ely, *-en
X1, X2, a+e no+1ally di0*+i3)*ed 4i*- "e0n = >, and 609i0nce
= ?
2
/(1-B
2
)

A)*o/o++ela*ion
=
1
= B
1
!o e0*i1a*e B, >, ?
C
2
6
EAR-./ ime-!erie! in#& m($el!:
7on0ide+ *-e *i1e-0e+ie0 1odel6
If X1 i0 /-o0en a((+o(+ia*ely, *-en
X1, X2, a+e ex(onen*ially di0*+i3)*ed 4i*- "e0n = 1I

A)*o/o++ela*ion =
1
= B
1
, and only (o0i*i,e
/o++ela*ion i0 allo4ed.
!o e0*i1a*e B, 6