In probability theory, a stochastic process (

/stkstk/), or sometimes random process, is the counterpart to a

deterministic process (or deterministic system). Instead of dealing with only one possible reality of how the process might evolve under time (as is the case, for example, for solutions of an ordinary differential equation), in a stochastic or random process there is some indeterminacy in its future evolution described by probability distributions. This means that even if the initial condition (or starting point) is known, there are many possibilities the process might go to, but some paths may be more probable and others less so. In the simplest possible case (discrete time), a stochastic process amounts to a sequence of random variables known as a time series (for example, see Markov chain). Another basic type of a stochastic process is a random field, whose domain is a region of space, in other words, a random function whose arguments are drawn from a range of continuously changing values. One approach to stochastic processes treats them as functions of one or several deterministic arguments (inputs, in most cases regarded as time) whose values (outputs) are random variables: non-deterministic (single) quantities which have certain probability distributions. Random variables corresponding to various times (or points, in the case of random fields) may be completely different. The main requirement is that these different random quantities all have the same type (Mathematically speaking, the type refers to the codomain of the function). Although the random values of a stochastic process at different times may be independent random variables, in most commonly considered situations they exhibit complicated statistical correlations. Familiar examples of processes modeled as stochastic time series include stock market and exchange rate fluctuations, signals such as speech, audio and video, medical data such as a patient's EKG, EEG, blood pressure or temperature, and random movement such as Brownian motion or random walks. Examples of random fields include static images, random terrain (landscapes), or composition variations of a heterogeneous material. [edit]Formal definition and basic properties [edit]Definition Given a probability space , a stochastic process (or random process) with state space X is a collection of X-

valued random variables on indexed by a set T("time"). That is, a stochastic process F is a collection

where each Ft is an X-valued random variable on . A modification G of the process F is a stochastic process with the same state space X and same parameter set T such that

A modification is indistinguishable from the original stochastic process if

[edit]Finite-dimensional distributions

Let F be an X-valued stochastic process. For every finite subset write , where and the restriction

, we may is a of this random variable is a

random variable taking values in Xk. The distribution

probability measure onXk. Such random variables are called the finite-dimensional distributions of F. Under suitable topological restrictions, a suitably "consistent" collection of finite-dimensional distributions can be used to define a stochastic process (see Kolmogorov extension in the next section). [edit]Construction In the ordinary axiomatization of probability theory by means of measure theory, the problem is to construct a sigma-algebra of measurable subsets of the space of all functions, and then put a finite measure on it. For this purpose one traditionally uses a method called Kolmogorov extension. There is at least one alternative axiomatization of probability theory by means of expectations on Cstar algebras of random variables. In this case the method goes by the name of GelfandNaimarkSegal construction. This is analogous to the two approaches to measure and integration, where one has the choice to construct measures of sets first and define integrals later, or construct integrals first and define set measures as integrals of characteristic functions. [edit]Kolmogorov extension The Kolmogorov extension proceeds along the following lines: assuming that a probability measure on the space of all functions finite-dimensional random variables exists, then it can be used to specify the joint probability distribution of . Now, from this n-dimensional probability

distribution we can deduce an (n 1)-dimensional marginal probability distribution for . Note that the obvious compatibility condition, namely, that this

marginal probability distribution be in the same class as the one derived from the full-blown stochastic process, is not a requirement. Such a condition only holds, for example, if the stochastic process is a Wiener process (in which case the marginals are all gaussian distributions of the exponential class) but not in general for all stochastic processes. When this condition is expressed in terms of probability densities, the result is called the ChapmanKolmogorov equation. The Kolmogorov extension theorem guarantees the existence of a stochastic process with a given family of finite-dimensional probability distributions satisfying the ChapmanKolmogorov compatibility condition. [edit]Separability, or what the Kolmogorov extension does not provide Recall that in the Kolmogorov axiomatization, measurable sets are the sets which have a probability or, in other words, the sets corresponding to yes/no questions that have a probabilistic answer.

The Kolmogorov extension starts by declaring to be measurable all sets of functions where finitely many coordinates are restricted to lie in measurable subsets of Yn. In other words, if a

yes/no question about f can be answered by looking at the values of at most finitely many coordinates, then it has a probabilistic answer. In measure theory, if we have a countably infinite collection of measurable sets, then the union and intersection of all of them is a measurable set. For our purposes, this means that yes/no questions that depend on countably many coordinates have a probabilistic answer. The good news is that the Kolmogorov extension makes it possible to construct stochastic processes with fairly arbitrary finite-dimensional distributions. Also, every question that one could ask about a sequence has a probabilistic answer when asked of a random sequence. The bad news is that certain questions about functions on a continuous domain don't have a probabilistic answer. One might hope that the questions that depend on uncountably many values of a function be of little interest, but the really bad news is that virtually all concepts of calculus are of this sort. For example:

1. boundedness 2. continuity 3. differentiability

all require knowledge of uncountably many values of the function. One solution to this problem is to require that the stochastic process be separable. In other words, that there be some countable set of coordinates {f(xi)} whose values determine the whole random function f. The Kolmogorov continuity theorem guarantees that processes that satisfy certain constraints on the moments of their increments have continuous modifications. [edit]Examples and special cases [edit]Time A notable special case is where the time is a discrete set, for example the nonnegative integers {0, 1, 2, 3, ...}. Another important special case is .

Stochastic processes may be defined in higher dimensions by attaching a multivariate random variable to each point in the index set, which is equivalent to using a multidimensional index set. Indeed a multivariate random variable can itself be viewed as a stochastic process with index set T = {1, ..., n}. [edit]Examples The paradigm of continuous stochastic process is that of the Wiener process. In its original form the problem was concerned with a particle floating on a liquid surface, receiving "kicks" from the molecules of the liquid. The

particle is then viewed as being subject to a random force which, since the molecules are very small and very close together, is treated as being continuous and, since the particle is constrained to the surface of the liquid by surface tension, is at each point in time a vector parallel to the surface. Thus the random force is described by a two component stochastic process; two real-valued random variables are associated to each point in the index set, time, (note that since the liquid is viewed as being homogeneous the force is independent of the spatial coordinates) with the domain of the two random variables being R, giving thex and y components of the force. A treatment of Brownian motion generally also includes the effect of viscosity, resulting in an equation of motion known as the Langevin equation. If the index set of the process is N (the natural numbers), and the range is R (the real numbers), there are some natural questions to ask about the sample sequences of a process {Xi}i N, where a sample sequence is {X()i}i N.

1. What is the probability that each sample sequence is bounded? 2. What is the probability that each sample sequence is monotonic? 3. What is the probability that each sample sequence has a limit as the index approaches ? 4. What is the probability that the series obtained from a sample sequence from f(i) converges? 5. What is the probability distribution of the sum?
Similarly, if the index space I is a finite or infinite interval, we can ask about the sample paths {X()t}t I

1. What is the probability that it is bounded/integrable/continuous/differentiable...?

2. What is the probability that it has a limit at 3. What is the probability distribution of the integral?

Probability theory From Wikipedia, the free encyclopedia Probability theory is the branch of mathematics concerned with analysis of random phenomena.[1] The central objects of probability theory are random variables, stochastic processes, and events: mathematical abstractions of nondeterministic events or measured quantities that may either be single occurrences or evolve over time in an apparently random fashion. If an individual coin toss or the roll of die is considered to be a random event, then if repeated many times the sequence of random events will exhibit certain patterns, which can be studied and predicted. Two representative mathematical results describing such patterns are the law of large numbers and the central limit theorem. As a mathematical foundation for statistics, probability theory is essential to many human activities that involve quantitative analysis of large sets of data. Methods of probability theory also apply to descriptions of complex systems given only partial knowledge of their state, as in statistical mechanics. A great discovery of twentieth century physics was the probabilistic nature of physical phenomena at atomic scales, described in quantum mechanics.

History The mathematical theory of probability has its roots in attempts to analyze games of chance by Gerolamo Cardano in the sixteenth century, and by Pierre de Fermat and Blaise Pascal in the seventeenth century (for example the "problem of points"). Christiaan Huygens published a book on the subject in 1657.[2] Initially, probability theory mainly considered discrete events, and its methods were mainly combinatorial. Eventually, analytical considerations compelled the incorporation ofcontinuous variables into the theory. This culminated in modern probability theory, on foundations laid by Andrey Nikolaevich Kolmogorov. Kolmogorov combined the notion of sample space, introduced byRichard von Mises, and measure theory and presented his axiom system for probability theory in 1933. Fairly quickly this became the mostly undisputed axiomatic basis for modern probability theory but alternatives exist, in particular the adoption of finite rather than countable additivity by Bruno de Finetti.[3] Treatment Most introductions to probability theory treat discrete probability distributions and continuous probability distributions separately. The more mathematically advanced measure theory based treatment of probability covers both the discrete, the continuous, any mix of these two and more. Motivation Consider an experiment that can produce a number of outcomes. The collection of all results is called the sample space of the experiment. The power set of the sample space is formed by considering all different collections of possible results. For example, rolling a die produces one of six possible results. One collection of possible results produce an odd number. Thus, the subset {1,3,5} is an element of the power set of the sample space of die rolls. These collections are called events. In this case, {1,3,5} is the event that the die falls on some odd number. If the results that actually occur fall in a given event, that event is said to have occurred. Probability is a way of assigning every "event" a value between zero and one, with the requirement that the event made up of all possible results (in our example, the event {1,2,3,4,5,6}) be assigned a value of one. To qualify as a probability distribution, the assignment of values must satisfy the requirement that if you look at a collection of mutually exclusive events (events that contain no common results, e.g., the events {1,6}, {3}, and {2,4} are all mutually exclusive), the probability that at least one of the events will occur is given by the sum of the probabilities of all the individual events.[4] The probability that one of the events {1,6}, {3}, or {2,4} will occur is 5/6. This is the same as saying that the probability of event {1,2,3,4,6} is 5/6. This event encompasses the possibility of any number except five being rolled. The mutually exclusive event {5) has a probability of 1/6, and the event {1,2,3,4,5,6} has a probability of 1 - absolute certainty. For convenience's sake, we ignore the possibility that the die, once rolled, will be obliterated before it can hit the table. Discrete probability distributions Main article: Discrete probability distribution Discrete probability theory deals with events that occur in countable sample spaces.

Examples: Throwing dice, experiments with decks of cards, and random walk. Classical definition: Initially the probability of an event to occur was defined as number of cases favorable for the event, over the number of total outcomes possible in an equiprobable sample space: see Classical definition of probability.

For example, if the event is "occurrence of an even number when a die is rolled", the probability is given by faces out of the 6 have even numbers and each face has the same probability of appearing.

, since 3

Modern definition: The modern definition starts with a finite or countable set called the sample space, which relates to the set of all possible outcomes in classical sense, denoted by . It is then assumed that for each element intrinsic "probability" value 1. 2. That is, the probability function f(x) lies between zero and one for every value of x in the sample space , and the sum of f(x) over all values x in the sample space is equal to 1. An event is defined as any subset The probability of the event is defined as of the sample space . is attached, which satisfies the following properties: , an

So, the probability of the entire sample space is 1, and the probability of the null event is 0. The function mapping a point in the sample space to the "probability" value is called a probability mass

function abbreviated as pmf. The modern definition does not try to answer how probability mass functions are obtained; instead it builds a theory that assumes their existence. Continuous probability distributions Main article: Continuous probability distribution Continuous probability theory deals with events that occur in a continuous sample space. Classical definition: The classical definition breaks down when confronted with the continuous case. See Bertrand's paradox. Modern definition: If the outcome space of a random variable X is the set of real numbers ( then a function called the cumulative distribution function(or cdf) That is, F(x) returns the probability that X will be less than or equal to x. The cdf necessarily satisfies the following properties. exists, defined by ) or a subset thereof, .

1.
2. 3. If

is a monotonically non-decreasing, right-continuous function;

is absolutely continuous, i.e., its derivative exists and integrating the derivative gives us the cdf back again, then

the random variable X is said to have a probability density function or pdf or simply density For a set , the probability of the random variable X being in is

In case the probability density function exists, this can be written as

Whereas the pdf exists only for continuous random variables, the cdf exists for all random variables (including discrete random variables) that take values in These concepts can be generalized for multidimensional cases on Measure-theoretic probability theory The raison d'tre of the measure-theoretic treatment of probability is that it unifies the discrete and the continuous cases, and makes the difference a question of which measure is used. Furthermore, it covers distributions that are neither discrete nor continuous nor mixtures of the two. An example of such distributions could be a mix of discrete and continuous distributionsfor example, a random variable that is 0 with probability 1/2, and takes a random value from a normal distribution with probability 1/2. It can still be studied to some extent by considering it to have a pdf of where [x] is the Dirac delta function. Other distributions may not even be a mix, for example, the Cantor distribution has no positive probability for any single point, neither does it have a density. The modern approach to probability theory solves these problems using measure theory to define the probability space: Given any set , (also called sample space) and a -algebra on it, a measure defined on is called , and other continuous sample spaces.

a probability measure if If is the Borel -algebra on the set of real numbers, then there is a unique probability measure on for

any cdf, and vice versa. The measure corresponding to a cdf is said to be induced by the cdf. This measure

coincides with the pmf for discrete variables, and pdf for continuous variables, making the measure-theoretic approach free of fallacies. The probability of a set in the -algebra is defined as

where the integration is with respect to the measure

induced by

Along with providing better understanding and unification of discrete and continuous probabilities, measure-theoretic treatment also allows us to work on probabilities outside functions. Probability distributions Main article: Probability distributions Certain random variables occur very often in probability theory because they well describe many natural or physical processes. Their distributions therefore have gained special importance in probability theory. Some fundamental discrete distributions are the discrete uniform, Bernoulli, binomial, negative binomial, Poisson and geometric distributions. Important continuous distributions include the continuous uniform, normal, exponential, gamma and beta distributions. Convergence of random variables Main article: Convergence of random variables In probability theory, there are several notions of convergence for random variables. They are listed below in the order of strength, i.e., any subsequent notion of convergence in the list implies convergence according to all of the preceding notions. Weak convergence: A sequence of random variables variable function converges weakly to the random , as in the theory of stochastic processes. For example to study Brownian motion, probability is defined on a space of

if their respective cumulative distribution functions converge to the cumulative distribution of , wherever is continuous. Weak convergence is also called convergence in distribution.

Most common short hand notation: Convergence in probability: The sequence of random variables random variable in probability if is said to converge towards the for every > 0.

Most common short hand notation: Strong convergence: The sequence of random variables variable strongly if convergence. Most common short hand notation: is said to converge towards the random

. Strong convergence is also known as almost sure

As the names indicate, weak convergence is weaker than strong convergence. In fact, strong convergence implies convergence in probability, and convergence in probability implies weak convergence. The reverse statements are not always true. Law of large numbers Main article: Law of large numbers Common intuition suggests that if a fair coin is tossed many times, then roughly half of the time it will turn up heads, and the other half it will turn up tails. Furthermore, the more often the coin is tossed, the more likely it should be that the ratio of the number of heads to the number of tails will approach unity. Modern probability provides a formal version of this intuitive idea, known as the law of large numbers. This law is remarkable because it is nowhere assumed in the foundations of probability theory, but instead emerges out of these foundations as a theorem. Since it links theoretically derived probabilities to their actual frequency of occurrence in the real world, the law of large numbers is considered as a pillar in the history of statistical theory.[5] The law of large numbers (LLN) states that the sample average theoretical expectation . It is in the different forms of convergence of random variables that separates the weak and the strong law of large numbers of (independent and identically

distributed random variables with finite expectation ) converges towards the

It follows from LLN that if an event of probability p is observed repeatedly during independent experiments, the ratio of the observed frequency of that event to the total number of repetitions converges towards p. Putting this in terms of random variables and LLN we have are

independent Bernoulli random variables taking values 1 with probability p and 0 with probability 1-p.E(Yi) = p for all i and it follows from LLN that converges to p almost surely. Central limit theorem Main article: Central limit theorem

"The central limit theorem (CLT) is one of the great results of mathematics." (Chapter 18 in.[6]) It explains the ubiquitous occurrence of the normal distribution in nature. The theorem states that the average of many independent and identically distributed random variables with finite variance tends towards a normal distribution irrespective of the distribution followed by the original random variables. Formally, let with mean and variance be independent random variables Then the sequence of random variables

converges in distribution to a standard normal random variable.