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    Notes On ECON3032: X Y U (X

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    SA Smith Aina
    This document provides an overview of three methods for finding the probability distribution or density function of a random variable Y that is a function u(Xi) of other random variables Xi: the method of distribution functions, the method of transformation, and the method of moment generating functions (MGFs). It then gives two examples applying the method of distribution functions. The first example finds the density function of Y=X3 when X has a uniform distribution on [0,1]. The second example finds the density function of the daily profit which is a function of the random daily sugar production Y.

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    Notes On ECON3032: X Y U (X

    Uploaded by

    SA Smith Aina
    46 views2 pages
    This document provides an overview of three methods for finding the probability distribution or density function of a random variable Y that is a function u(Xi) of other random variables Xi: the method of distribution functions, the method of transformation, and the method of moment generating functions (MGFs). It then gives two examples applying the method of distribution functions. The first example finds the density function of Y=X3 when X has a uniform distribution on [0,1]. The second example finds the density function of the daily profit which is a function of the random daily sugar production Y.

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    This document provides an overview of three methods for finding the probability distribution or density function of a random variable Y that is a function u(Xi) of other random variables Xi: the method of distribution functions, the method of transformation, and the method of moment generating functions (MGFs). It then gives two examples applying the method of distribution functions. The first example finds the density function of Y=X3 when X has a uniform distribution on [0,1]. The second example finds the density function of the daily profit which is a function of the random daily sugar production Y.

    Copyright:

    © All Rights Reserved
    Download as ODT, PDF, TXT or read online from Scribd
    Download as odt, pdf, or txt
    46 views2 pages

    Notes On ECON3032: X Y U (X

    Uploaded by

    SA Smith Aina
    This document provides an overview of three methods for finding the probability distribution or density function of a random variable Y that is a function u(Xi) of other random variables Xi: the method of distribution functions, the method of transformation, and the method of moment generating functions (MGFs). It then gives two examples applying the method of distribution functions. The first example finds the density function of Y=X3 when X has a uniform distribution on [0,1]. The second example finds the density function of the daily profit which is a function of the random daily sugar production Y.

    Copyright:

    © All Rights Reserved
    Download as ODT, PDF, TXT or read online from Scribd
    Download as odt, pdf, or txt
    of 2

    Notes on ECON3032

    Distribution of functions of random variable


    Introduction
    Given a set of random variables X i , the (joint) probability distribution/density function of a random variable
    Y =u ( X i ) can be found with the method of distribution functions, the method of transformation, or the method of
    MGFs. All methods will work for most functions, but, depending on the circumstances, one may be more useful than
    another.

    Method of distribution functions


    First, find the distribution function and then the probability density by differentiation.
    1. Note the probability density function
    2. State the region G( y )=P(Y ≤ y)
    3. Using u(X i) , find the equivalent region P(u( X i)≤ y)
    4. Solve for X i within the region
    5. Integrate the PDF within the bounds of (4)
    6. Differentiate (5) to find the PDF of Y

    Example 1.1:

    f (x)= 6 x (1−x ), 0< x <1 ,Y =X


    { 0 elsewhere
    3
    }
    G( y )=P(Y ≤ y )
    G( y )=P( X 3≤ y )
    G( y)=P (x≤ y 1/ 3)
    1/3
    y
    G( y )=∫ 6 x(1−x)dx
    0
    1/3

    G( y )=[3 x 2−2 x3 ]0y


    G( y )=3 y 2/ 3−2 y
    g( y )=G '( y )=2 y−1 /3−2=2( y 1 /3−1)

    Example 1.2:
    A process for refining sugar yields up to 1 ton of pure sugar per day. However, the actual amount produced per day,
    Y , is a random variable due to unforeseen production issues. Suppose Y has the following density function
    f ( y)= 2 y , 0≤ y ≤1
    {
    0elsewhere }
    The company is paid at a rate of US$300 per ton for refined sugar but has a fixed overhead cost of US$100 per day.
    Hence, the daily profit (in US$’00) is 3 Y − 1 . Find the pdf of the profit function.

    G( π )=P (Π≤ π )=G( π )=P (3 Y −1≤ π )


    π +1
    G( π )=P Y ≤
    3 ( )
    ( π +1)/3

    G( π )= ∫ 2 y dy=G( π )=[ y 2 ](0π +1)/3


    0
    2
    1
    G( π )= [
    ( π +1)
    3
    = ( π +1)2
    9 ]
    2
    g ( π )=g ' ( π )= (π + 1)
    9
    Method of transformation
    Method of moment generating functions

    Appendix with other useful information

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