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LESSON 2:

SOME ELEMENTS OF PROBABILITY THEORY


AND STATISTICS
Lesson Outline

Summation and Product Operators


Sample Space, Sample Points, and Events
Probability
Properties of Probability
Random Variables
Expected Value
Properties of Expected Values
Variance and Standard Deviation
Properties of Variance
Covariance
Properties of Covariance
S u m m a ti o n O p e r a t o r s

The Greek capital letter Σ (sigma) is used to indicate summation.


Product Operators

The product operator Π is defined as


Sample Space, Sample Points, and Events

 The set of all possible outcomes of a random, or chance,


experiment is called the population, or sample space.

 Each member of this sample space is a sample point.

 An event is a subset of the sample space.


Probability

Let A be an event in a sample space. By P(A), we mean the


proportion of times the event A will occur in repeated trials of
an experiment.
Properties of Probability
Random Variables

A variable whose value is determined by the outcome of a

chance experiment is called a random variable(RV).


E x p e c t e d Va l u e

The expected value of a discrete random variable X, denoted by


E(X), is defined as follows:

Where Σx means the sum over all values of X and where


f(x) is the (discrete) Probability Distribution Function of X.

= (−2)*(0.27)+(0)*(0.12)+(2)*(0.26)+(3)*(0.35) =1.03
P r o p e r ti e s o f E x p e c t e d V a l u e s

 If b is a constant, then E(b)=b

 If a and b are constants, then E(aX+b) = aE(X) +b

 If X and Y are independent random variables, then


E(XY) = E(X)E(Y)

 If X is a random variables with Probability Distribution


Function f(x) and if g(X) is any function of X, then
V a r i a n c e a n d S t a n d a r d D e v i a ti o n

If X is a random variable and E(X)=µ.


The distribution, or spread, of the X values around the expected
value of µ can be measured by the variance, which is defined as:

var (X) = σ2X = E(X−µ)2

The positive square root of σ2X, σX is defined as the standard

deviation of X.
The variance or standard deviation gives an idea of how closely or widely the
individual X values are spread around their mean value of µ.
P r o p e r ti e s o f V a r i a n c e

 E(X − µ)2 = E(X2) − µ2

 The variance of a constant is zero.

 If a and b are constants, then var(aX+b) = a2var(X)


 If X and Y are independent random variables, then
var(X+Y) = var(X) + var(Y)
var(X-Y) = var(X) + var(Y)
 If X and Y are independent random variables and If a and b
are constants, then
var(aX + bY) = a2var(X) + b2var(Y)
Covariance

If X and Y are random variable and E(X) = µX and E(Y) = µY.


Then the covariance between these two variables is defined as :

cov(X,Y) = E{(X- µX)(Y- µY)} = E(XY) - µX µY

It can be readily seen that the variance of a variable is the covariance of that
variable with itself.
P r o p e r ti e s o f C o v a r i a n c e

 If X and Y are independent, then their covariance is zero.


According to the third properties of Expected Value: if X and Y are independent, then
E(XY) = E(X)E(X) = µX µY. Thus,

cov(X,Y) = E(XY) - µX µY = µX µY - µX µY = 0

 If a, b, c and d are constants, then

cov (a+bX,c+dY) = bdcov (X,Y)