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Econometric Methods, ECO341A, Semester I, 2015-16

Homework I (100 points)


Instructor: M.A. Rahman
Deadline: 2:50 pm, August 21, 2015.

Please read the instructions carefully and follow them while writing answers.
Solutions to homework should be written in A4 size loose sheets. If you are not comfortable
writing on white sheets, please ask for biology paper in Tarun Book Store.
Questions should be answered in order as they appear in the homework. Every new question
should begin in a new page. Please number all the pages of your homework solution.
Please leave a margin of one inch from top and one inch from left. Staple the sheets on the
top-left.
Matlab assignments (if any) and written answers should be together and in order.

1. (1 4 = 4 points) Prove each of the following statements. (Assume that any conditioning
event has positive probability.)
(a) If P (B) = 1, the P (A|B) = A for any A.
(b) If A B, then P (B|A) = 1 and P (A|B) = P (A)/P (B).
(c) If A and B are mutually exclusive, then
P (A|A B) =

P (A)
.
P (A) + P (B)

(d) P (A B C) = P (A|B C)P (B|C)P (C).


2. (2 + 2 = 4 points) A pair of events A and B cannot be simultaneously mutually exclusive
and independent. Prove that if P (A) > 0 and P (B) > 0, then:
(a) If A and B are mutually exclusive, they cannot be independent.
(b) If A and B are independent, they cannot be mutually exclusive.
1

3. (3 8 = 24 points) Distribution, Moments and MGFs: Write down the pdfs and
derive the mean, variance and MGFs of the following distributions.
(a) Logistic distribution
(b) Chi-square distribution
(c) Laplace distribution
(d) Student-t distribution with degrees of freedom
(e) Gamma distribution (Statistical Inference by Casella and Berger (henceforth, CB), page 99)
(f) Beta distribution (CB, page 106)
(g) F(1 , 2 ) distribution. Does the MGF exists?
(h) log-normal distribution. Does the MGF exists?
4. (2 + 4 = 6 points) Suppose X N (0, 2 ), then answer the following,
(a) Find the distribution of Y = |X|.
(b) Find the mean and variance of Y.
5. (3 4 = 12 points) Near the end of the nineteenth century Karl Pearson developed the
Pearson family of distributions in which the p.d.f. f (y) satisfies the differential equation
a+y
1 d[f (y)]
=
,
f (y) dy
b + cy + dy 2
subject to the constraint that f (y) 0 and f (y) integrates to unity. If a formal solution to the
differential equation does not satisfy f (y) 0, then the range of values of y is restricted to those
for which f (y) > 0, and f (y) = 0 is assigned when y is outside this range. For appropriate choices
of a,b,c, and d, show that each of the following distributions is a member of the Pearson family
(see Johnson and Kotz 1970a, pp 9-15)
(a) Normal distribution
(b) Beta distribution
(c) Gamma distribution
(d) Student t-distribution.
6. (3 + 3 = 6 points) A truncated discrete distribution is one in which a particular class cannot
be observed and is eliminated from the sample space. In particular, if X has range 0, 1, 2, . . . and
the 0 class cannot be observed (as usually the case), the 0-truncated random variable XT has pmf,
2

P (XT = x) =

P (X = x)
,
P (X > 0

x = 1, 2, . . . .

Find the pmf, mean and variance of the 0-truncated random variable starting from,
(a) X Poisson()
(b) X negative binomial(r, p). (See equation 3.2.10 in CB)
7. (4 5 = 20 points) Many named distributions are special cases of the more common
distributions already discussed. For each of the following named distributions derive the form of
the pdf, verify that is a pdf, and calculate the mean and variance.
(a) If X exp(), then Y = X 1/ has the Weibull(, ) distribution, where > 0 is a constant.
(b) If X exp(), then Y = (2X/)1/2 has the Rayleigh distribution.
(c) If X Gamma(a, b), then Y = 1/X has the inverted Gamma IG(a, b) distribution.
(d) If X Gamma( 32 , ), then Y = (X/)1/2 has the Maxwell distribution.
(e) If X exp(1), then Y = log X has the Gumbel(, ) distribution, where < <
and > 0. (The Gumbel distribution is also known as the extreme value distribution).
8. (4 + 2 + 4 = 10 points) Let (X, Y) be random variable with the following pdf,
f(X,Y ) (x, y) =
on R2 ,

2x y

x2 , y2 > 0,

(a) fX (x) =

1
2

1
p

(1 2 )

n x 2  y 2
(x x )(y y ) oi
1
y
x
,
+
2
2(1 2 )
x
y
x y

|| 1. Suppose, x = y = 0, x = y = 1, then show the following,


exp
1
2(12 )

(b) fY |X (y|x) =

h
exp

x2
2


.

h
exp

1 (yx)2
2 (12 )

(c) Cov(X,Y) = .

9. (3 + 4 + 4 + 3 = 14 points) A generalization of the beta distribution is the Dirichlet


distribution. In its bivariate version, (X, Y ) have pdf,
f (x, y) = Cxa1 y b1 (1 x y)c1 ,

0 < x < 1, 0 < y < 1, 0 < y < 1 x < 1,

where a > 0, b > 0 and c > 0 are constants.


(a) Show that C =

(a+b+c)
(a)(b)(c) .

(b) Show that, marginally, both X and Y are beta distributions.


(c) Find the conditional distribution of Y |X = x, and show that Y /(1 x) is beta(b, c).
(d) Show that E(XY ) =

ab
(a+b+c+1)(a+b+c) ,

and find their covariance.