Stochastic Processes

Probability Review

Noha Youssef

The American University in Cairo

[email protected]

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Table of Contents

Introduction to Probability

Random Variables

Expectation and Variance

Conditional Expectation

Laws of Total Expectation and Variance

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Probability

Definition 1.1: A sample space, Ω, is a set of possible outcomes

of a random experiment.
Definition 1.2: An event, A, is a subset of the sample space. This
means that event A is simply a collection of outcomes. Event
A occurs if the outcome of the random experiment is a member
of the set A.

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Probability Rules
Axioms
1. P (φ) = 0
2. 0 ≤ P (A) ≤ 1

Complement
P (Ā) = 1 − P (A).

Addition Rule
P (A ∪ B) = P (A) + P (B) − P (A ∩ B). If A and B are mutually
exclusive then P (A ∪ B) = P (A) + P (B).

Conditional probability
P (A∩B)
P (A|B) = P (B) .

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Cont’D

Multiplication Rule
P (A ∩ B) = P (A) × P (B|A) = P (B) × P (A|B).

The Partition Theorem

If B1 , B2 , · · · Bm form a partition of Ω, then
m
X m
X
P (A) = P (A ∩ Bi ) = P (A|Bi )P (Bi )
i=1 i=1

for any event A.

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Cont’D
Bayes’Theorem

P (A|B)P (B)
P (B|A) = ,
P (A)
more generally if B1 , B2 , · · · Bm form a partition of Ω, then

P (A|Bj )P (Bj )
P (Bj |A) = Pm .
i=1 P (A|Bi )P (Bi )

Chain of events
For any events A1 , A2 , · · · , ...An ,

P (A1 ∩ A2 ∩ · · · An ) = P (A1 )P (A2 |A1 )P (A3 |A1 ∩ A2 ) · · ·

P (An |An−1 ∩ · · · ∩ A1 )

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Example 1

a. Which of the following is equal to P (B ∩ C|A)?

P (B|C)
(a) P (B|C ∩ A) (b) P (A)

(c) P (B|C ∩ A)P (C|A) (d) P (B|C)P (C|A)

Solution

P (B ∩ C|A) = PA (B ∩ C)
= PA (B|C)PA (C)
= P (B|C ∩ A)P (C|A).

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Examples
b. Which of the following is true
(a) P (B̄|A) = 1 − P (B|A) (b)P (B̄|A) = P (B) − P (B|A)
c. Which of the following is true?
(a)P (B̄ ∩ A) = P (A) − P (A ∩ B)
(b)P (B̄ ∩ A) = P (B) − P (A ∩ B)

Solution
(a)
P (B̄|A) = 1 − P (B|A)
(b)

P (B̄ ∩ A) = P (B̄|A)P (A)

= (1 − P (B|A))P (A)
= P (A) − P (B ∩ A).
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Random Variable

Definition 1.3: A random variable, X, is defined as a function

from the sample space to the real numbers: X : Ω → R.
A random variable therefore assigns a real number to every possible
outcome of a random experiment.
A random variable is essentially a rule or mechanism for generating
random real numbers.

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The Distribution Function

Definition 1.4: The cumulative distribution function of a random

variable X is given by FX (x) = P (X ≤ x), FX (x) is often referred
to as simply the distribution function.
Properties of the distribution function
1. FX (−∞) = P (X ≤ −∞) = 0, FX (+∞) = P (X ≤ ∞) = 1.
2. FX (x) is a non-decreasing function of x: if x1 < x2 , then
FX (x1 ) ≤ FX (x2 ).
3. If b > a, then P (a < X ≤ b) = FX (b) − FX (a).

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Continuous Random Variable

Definition 1.5: The random variable X is continuous if the dis-

tribution function FX (x) is a continuous function. In practice, this
means that a continuous random variable takes values in a continu-
ous subset of R: e.g.X : Ω → [0, 1] or X : Ω → [0, ∞).
Let X be a continuous random variable with continuous distribution
function FX (x). The probability density function (p.d.f.) of X is
defined as
d(FX (x))
fX (x) = FX0 (x) = .
dx
The pdf, fX (x), gives the shape of the distribution of X.

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Discrete Random Variable

Definition 1.6: The random variable X is discrete if X takes values

in a finite or countable subset of R: thus, X : Ω → {x1 , x2 , · · · }.
When X is a discrete random variable, the distribution function
FX (x) is a step function.

Let X be a discrete random variable with distribution function FX (x).

The probability function of X is defined as

fX (x) = P (X = x).

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Cont’D
The mean, expected value, or expectation of a random variable X is
written as E(X) or µX . If we observe N random values of X, then
the mean of the N values will be approximately equal to E(X) for
large N . The expectation is defined differently for continuous and
discrete random variables.
Definition 1.7:
Let X be a continuous random variable with p.d.f. fX (x). The
expected value of X is
Z ∞
E(X) = xfX (x)dx
−∞

Definition 1.8:
Let X be a discrete random variable with probability function
fX (x). The expected value of X is
X X
E(X) = xf (x) = xP (X = x).
x x

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Properties of Expectation

1. Let g and h be functions, and let a and b be constants. For

any random variable X,

E (ag(X) + bh(X)) = aE (g(X)) + bE (h(X)) .

2. Let X and Y be ANY random variables (discrete, continuous,

independent, or non-independent). Then
E(X + Y ) = E(X) + E(Y ).
More generally, for ANY random variables X1 , · · · , Xn ,
E(X1 + · · · + Xn ) = E(X1 ) + · · · + E(Xn ).
3. Let X and Y be independent random variables, and g, h be
functions. Then E(XY ) = E(X)E(Y ),
E(g(X)h(Y )) = E(g(X))E(h(Y )).

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Cont’D

Notes:
1. E(XY ) = E(X)E(Y ) is ONLY generally true if X and Y are
INDEPENDENT.
2. If X and Y are independent, then E(XY ) = E(X)E(Y ).
However, the converse is not generally true: it is possible for
E(XY ) = E(X)E(Y ) even though X and Y are dependent.

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Variance
The variance of a random variable X is a measure of how spread
out it is. The variance measures how far the values of X are from
their mean, on average.
Let X be any random variable. The variance of X is

V ar(X) = E(X − µX )2 = E(X 2 ) − E(X)2 .

The variance is the mean squared deviation of a random variable

from its own mean.
Properties of Variance
1. Let g be a function, and let a and b be constants. For any
random variable X, V ar(ag(X) + b) = a2 V ar(g(X))
2. Let X and Y be independent random variables. Then V ar(X +
Y ) = V ar(X) + V ar(Y ).
3. If X and Y are NOT independent, then V ar(X+Y ) = V ar(X)+
V ar(Y ) + 2cov(X, Y ).
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Conditional Expectation

Definition 1.8
Consider a pair (X, Y ) of discrete random variables X and Y with
joint probability mass function p(x, y). The conditional expectation
E[X|Y = y] is defined as with and for
X
E[X|Y = y] = xpX|Y (x|y),
x

with
p(x, y)
pX|Y (x|y) = ,
pY (y)
and for
pY (y) 6= 0.

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Cont’D

Definition 1.9
Consider a pair (X, Y ) of continuous random variables X and Y
with joint probability density function f (x, y). The conditional ex-
pectation E[X|Y = y] is defined as with and for
Z
E[X|Y = y] = xfX|Y f (x|y)dx,
x

with
f (x, y)
fX|Y (x|y) = ,
fY (y)
and for
fY (y) 6= 0.
Note that E[X|Y = y] changes with y. It follows that E[X|Y ]
is itself a random variable. Conditional expectation, EX|Y ), is a
random variable with randomness inherited from Y , not X.
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Example
Consider the following joint density
1
f (x, y) =
x
for 0 < y ≤ x ≤ 1. Find E[Y |X].
Solution
First, we find the marginal density function of X by integrating
f (y, x) wrt y over 0 < y ≤ x.
Z x
1 1
f (x) = dy = y|x0 = 1
0 x x
It follows that
f (y, x) 1
f (y|x) = = .
f (x) x
The conditional expectation E[Y |X = x] is given by
Z x Z x
y y2 x x
E[Y |X = x] = yfY |X (y|x)dy = dy = | = .
0 0 x 2x 0 2
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Example

Suppose that p(x, y), the joint probability mass function of X and Y ,
is given by p(1, 1) = 0.5, p(1, 2) = 0.1, p(2, 1) = 0.1, p(2, 2) = 0.3.
Find the distribution of E[X|Y ].
Solution
First we need to find the values E[X|Y ], bear in mind that by con-
ditioning we are restricting our sample space

y 1 2
1(0.5)+2(0.1) 7 1(0.1)+2(0.3) 7
E[X|Y = y] 0.5+0.1 = 6 0.1+0.3 = 4
P (Y = y) 0.6 0.4

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Laws of Total Expectation and Variance

If all the expectations below are finite, then for ANY random vari-
ables X and Y , we have:
1. E(X) = EY (EX|Y (X|Y )), Law of Total Expectation.
2. V ar(X) = EY (V ar(X|Y )) + V arY (E(X|Y )), Law of Total
Variance.
The expectation or variance is computed over the distribution of the
random variable Y .

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Proof for the discrete case

!
X X
EY EX|Y ((X|Y )) = xP (X = x|Y ) PY (Y = y)
Y x
!
X X P (X, Y )
= x PY (Y = y)
x
PY (Y = y)
Y
!
X X
= xP (X, Y )
Y x
!
X X
= x P (X, Y )
x y
X
= xP (X = x)
x
= E(X).

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Homework

Find the unconditional expectation E(X) for Example 3.

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