Joint Probability Distributions L3.pptxVIP

Joint Probability DistributionsJoint distribution requires two or more events Then we can define the joint distribution; marginal distributions; conditional distributions; joint distributions: Let X and Y be discrete random variables. Then (X,Y) has a joint distribution which can be described by the joint pdf fxy(x,y) = P(X=x,Y=y) The random variables X and Y are said to be independent if fxy(x,y)= fx(x) fy(y) Example (discrete RV): in basketball, if the probability of making throws does not depend on the last throw and is equal to 0.8, what is the probability of making two free throws? Answer = (0.8)(0.8)=0.64 Joint distribution of x and yP(X=2, Y=3)= ?Marginal DistributionThe values that go on the inside portion of the table are the intersections or ands of each pair of events. Marginal is another word for totals -- its called marginal because they appear in the margins. ProbabilitiesXNot XMarginalY0.000.200.20Not Y0.700.100.80Marginal0.700.301.00P(X) = 0.7 P(Y) = 0.2P(X or Y) = 0.2 + 0.7 – 0.0 = 0.9P(not X or not Y) = 0.8 + 0.3 – 0.1 = 1?The marginal distribution of X is The marginal distribution of Y isConditional ProbabilityLet X and Y be random variables. The conditional distribution of Y given X is the probability that Y=y, given that X=x. fy|x(y|x) = P(Y=y | X=x) fy|x(y|x) = fxy (x,y)/fx (x) What is the distribution of Y, conditional on Not X? P(Y | Not X) = 0.2/0.3 = 0.66 P(Not Y| Not X) = 0.1/0.3 = 0.33 This gives the distribution of Y conditional on Not X. What is the conditional distribution of Y given X? Probabilities X Not XY 00.2Not Y 0.70.1Conditional probability very important for financeIs the rate of inflation conditional on the growth of the money supply?Is the price of a share today conditional on yesterday’s price? Independent Events Two events are independent if the occurrence of one does not influence the occurrence of the other P(Y|X) = P(Y) P(Y and X) = P(Y) * P(X) ExampleProbability RulesProb(X and Y) = P(X)*P(Y) if X and Y indepe