Exam 2. Instructor: Cynthia Rudin TA: Dimitrios Bisias. October 25, 2011

Similar documents
Lecture 5 Point Es/mator and Sampling Distribu/on

Chapter 10 - Lecture 2 The independent two sample t-test and. confidence interval

ii. Interval estimation:

Introduction to Probability and Statistics Chapter 7

Exam 1 Spring 2015 Statistics for Applications 3/5/2015

1 Random Variables and Key Statistics

18.S096 Problem Set 5 Fall 2013 Volatility Modeling Due Date: 10/29/2013

Inferential Statistics and Probability a Holistic Approach. Inference Process. Inference Process. Chapter 8 Slides. Maurice Geraghty,

A point estimate is the value of a statistic that estimates the value of a parameter.

Sampling Distributions and Estimation

A random variable is a variable whose value is a numerical outcome of a random phenomenon.

1. Suppose X is a variable that follows the normal distribution with known standard deviation σ = 0.3 but unknown mean µ.

Statistics for Economics & Business

CHAPTER 8 Estimating with Confidence

BASIC STATISTICS ECOE 1323

AY Term 2 Mock Examination

NOTES ON ESTIMATION AND CONFIDENCE INTERVALS. 1. Estimation

Chapter 8. Confidence Interval Estimation. Copyright 2015, 2012, 2009 Pearson Education, Inc. Chapter 8, Slide 1

14.30 Introduction to Statistical Methods in Economics Spring 2009

Statistics for Business and Economics

Sampling Distributions & Estimators

Sampling Distributions and Estimation

Lecture 4: Probability (continued)

Lecture 4: Parameter Estimation and Confidence Intervals. GENOME 560 Doug Fowler, GS

Today: Finish Chapter 9 (Sections 9.6 to 9.8 and 9.9 Lesson 3)

Confidence Intervals. CI for a population mean (σ is known and n > 30 or the variable is normally distributed in the.

Topic-7. Large Sample Estimation

Parametric Density Estimation: Maximum Likelihood Estimation

Estimating Proportions with Confidence

CHAPTER 8: CONFIDENCE INTERVAL ESTIMATES for Means and Proportions

. (The calculated sample mean is symbolized by x.)

ST 305: Exam 2 Fall 2014

Basic formula for confidence intervals. Formulas for estimating population variance Normal Uniform Proportion

Chapter 8: Estimation of Mean & Proportion. Introduction

Online appendices from Counterparty Risk and Credit Value Adjustment a continuing challenge for global financial markets by Jon Gregory

5. Best Unbiased Estimators

Standard Deviations for Normal Sampling Distributions are: For proportions For means _

point estimator a random variable (like P or X) whose values are used to estimate a population parameter

Introduction to Statistical Inference

BIOSTATS 540 Fall Estimation Page 1 of 72. Unit 6. Estimation. Use at least twelve observations in constructing a confidence interval

x satisfying all regularity conditions. Then

5 Statistical Inference

CHAPTER 8: CONFIDENCE INTERVAL ESTIMATES for Means and Proportions

r i = a i + b i f b i = Cov[r i, f] The only parameters to be estimated for this model are a i 's, b i 's, σe 2 i

Dr. Maddah ENMG 624 Financial Eng g I 03/22/06. Chapter 6 Mean-Variance Portfolio Theory

Chpt 5. Discrete Probability Distributions. 5-3 Mean, Variance, Standard Deviation, and Expectation


Introduction to Econometrics (3 rd Updated Edition) Solutions to Odd- Numbered End- of- Chapter Exercises: Chapter 2

Math 124: Lecture for Week 10 of 17

Monetary Economics: Problem Set #5 Solutions

STRAND: FINANCE. Unit 3 Loans and Mortgages TEXT. Contents. Section. 3.1 Annual Percentage Rate (APR) 3.2 APR for Repayment of Loans

B = A x z

1 Basic Growth Models

SCHOOL OF ACCOUNTING AND BUSINESS BSc. (APPLIED ACCOUNTING) GENERAL / SPECIAL DEGREE PROGRAMME

ECON 5350 Class Notes Maximum Likelihood Estimation

An Empirical Study of the Behaviour of the Sample Kurtosis in Samples from Symmetric Stable Distributions

These characteristics are expressed in terms of statistical properties which are estimated from the sample data.

1. Find the area under the standard normal curve between z = 0 and z = 3. (a) (b) (c) (d)

Just Lucky? A Statistical Test for Option Backdating

0.1 Valuation Formula:

Quantitative Analysis

Variance and Standard Deviation (Tables) Lecture 10

STAT 135 Solutions to Homework 3: 30 points

Research Article The Probability That a Measurement Falls within a Range of n Standard Deviations from an Estimate of the Mean

Unbiased estimators Estimators

Lecture 5: Sampling Distribution

Subject CT1 Financial Mathematics Core Technical Syllabus

A Bayesian perspective on estimating mean, variance, and standard-deviation from data

Combining imperfect data, and an introduction to data assimilation Ross Bannister, NCEO, September 2010

Control Charts for Mean under Shrinkage Technique

Data Analysis and Statistical Methods Statistics 651

= α e ; x 0. Such a random variable is said to have an exponential distribution, with parameter α. [Here, view X as time-to-failure.

Lecture 9: The law of large numbers and central limit theorem

4.5 Generalized likelihood ratio test

The Idea of a Confidence Interval

Models of Asset Pricing

Models of Asset Pricing

Appendix 1 to Chapter 5

CAPITAL PROJECT SCREENING AND SELECTION

of Asset Pricing R e = expected return

Chapter 10 Statistical Inference About Means and Proportions With Two Populations. Learning objectives

Bayes Estimator for Coefficient of Variation and Inverse Coefficient of Variation for the Normal Distribution

FINM6900 Finance Theory How Is Asymmetric Information Reflected in Asset Prices?

Confidence Intervals Introduction

Models of Asset Pricing

SOLUTION QUANTITATIVE TOOLS IN BUSINESS NOV 2011

of Asset Pricing APPENDIX 1 TO CHAPTER EXPECTED RETURN APPLICATION Expected Return

The material in this chapter is motivated by Experiment 9.

Parameter Uncertainty in Loss Ratio Distributions and its Implications

Problem Set 1a - Oligopoly

Chapter 8 Interval Estimation. Estimation Concepts. General Form of a Confidence Interval

Simulation Efficiency and an Introduction to Variance Reduction Methods

CHAPTER 8 CONFIDENCE INTERVALS

Asymptotics: Consistency and Delta Method

Department of Mathematics, S.R.K.R. Engineering College, Bhimavaram, A.P., India 2

1 Estimating the uncertainty attached to a sample mean: s 2 vs.

Binomial Model. Stock Price Dynamics. The Key Idea Riskless Hedge

APPLICATION OF GEOMETRIC SEQUENCES AND SERIES: COMPOUND INTEREST AND ANNUITIES

Topic 14: Maximum Likelihood Estimation

1 The Black-Scholes model

Transcription:

15.075 Exam 2 Istructor: Cythia Rudi TA: Dimitrios Bisias October 25, 2011 Gradig is based o demostratio of coceptual uderstadig, so you eed to show all of your work. Problem 1 You are i charge of a study that compares how two weight-loss techiques (Diet ad Exercise) affect the weight loss of overweight patiets. The table below shows the umber of obese ad severely obese people who lost sigificat weight (successes) ad the umber of people who did t lose ay weight (failures) for both of the weight-loss techiques. Obese Severely Obese Diet successes Diet failures Exercise successes Exercise failures 10 30 22 58 60 20 35 5 1. Withi each category of obesity, compare success rates for the weight-loss techiques. What do these rates idicate? 2. Compare the total success rates for the two techiques. Explai ay differeces from (1). Solutio 1. For the obese category the success rate for diet is 10/40 = 25% while the success rate for exercise is 22/80 = 27.5%. For the severely obese category, the success rate for diet is 60/80 = 75% while the success rate for exercise is 35/40 = 87.5%.These figures show that exercise has higher success rates for both of the categories. 2. The total success rate for diet is 70/120 = 58.3% while the total success rate for exercise is 57/120 = 47.5%. This cotrasts with the result of part (1). This is a example of Simpso s paradox. The lurkig variable is type of obesity. There are far less obese people i case of diet tha exercise, who have the lower success rates. 1

Problem 2 You are the ower of a bakery sellig cheesecakes. Some days you sell a lot of cheesecakes ad some other days you do t, idepedetly of other days. I fact, the distributio of the umber of cheesecakes you sell each day is show below. If we measure cheesecakes sales for 100 days, what is the approximate probability that the average cheesecakes sales (over the 100 days) will be more tha 102 cheesecakes? Solutio Let X be the umber of cheesecakes sold i oe day. The due to symmetry E[X] = 100 ad var(x) = 2 0.2 20 2 + 2 0.3 5 2 = 175 We are asked to fid P ( X > 102). From CLT we kow that X is approximately ormally distributed with mea 100 ad variace 175 = 1.75, therefore we have: 102 100 P ( X > 102) P (Z > 1 ) = 1 Φ(1.51) = 0.065 175/100 2

Problem 3 Suppose that the observatios X 1, X 2,, X are iid with commo mea θ ad kow variace σ 2. Cosider the followig estimator of the mea θ: X 1 + +X Θˆ = +1. 1. What is the bias of this estimator? What happes to the bias as we icrease the size of the sample? 2. What is the MSE of the estimator? Hit: Remember to use either what you kow about V ar(x ), or what you kow about the variace of the sum of idepedet radom variables. Solutio ˆ 1. It is: Θ = +1 X. Therefore, ad Thus, we have: As the bias goes to 0. E[Θˆ ] = E[X ] = θ + 1 + 1 2 var[θˆ ] = var[x ] = σ 2 ( + 1) 2 ( + 1) 2 1 Bias = E[Θˆ ] θ = θ θ = θ + 1 + 1 2. It is: MSE(Θˆ ) = Bias 2 + var(θˆ ) = + σ 2 ( + 1) 2 ( + 1) 2 θ 2 3

Problem 4 The weight of a object is measured eight times usig a electroic scale that reports the true weight plus a radom error that is ormally distributed with zero mea ad variace σ 2 = 4. Assume that the errors i the observatios are idepedet. The followig results are obtaied: {4.45, 4.02, 5.51, 1.10, 2.62, 2.38, 5.94, 7.64} Compute a 95% cofidece iterval for the true weight. Solutio A 95% cofidece iterval for the true weight is σ σ 2 2 [X 1.96, X + 1.96 ] = [4.21 1.96, 4.21 + 1.96 ] = [2.82, 5.59] 8 8 4

Problem 5 The returs of a asset maagemet firm i differet years are idepedet ad ormally distributed with ukow mea ad variace. The asset maagemet firm claims that the stadard deviatio of the returs is as low as σ = 2% ad the mea of the returs is µ = 22%. You believe that this is too good to be true. To verify your suspicio, you take the returs from the last 10 years. These are: r = {20.6, 19.2, 17, 19.1, 18.7, 22.5, 27.2, 17.9, 22.5, 21.3} (To help you with the calculatios, we give you that: i=1 r(i) = 206 ad (r(i) r )2 = 79.34) 1. Calculate the sample mea ad stadard deviatio of the above radom sample. 2. What is the probability that whe we draw a ew radom sample of size 10, its sample mea will be below the oe you calculated i part 1? Assume that the compay s claims are correct. 3. What is the probability that whe we draw a ew radom sample of size 10, its sample stadard deviatio will be larger tha the oe you calculated i part 1, assumig that the compay s claims are correct? Solutio 79.34 = 2.97 9 i=1 i=1 r(i) i =1(r(i) r ) 2 1 1. The sample mea is: r = = 20.6 ad the sample stadard deviatio is s = = 2. Uder the compay s claims the sample mea is ormally distributed with mea 22% ad stadard deviatio 2/ 10%. It is: 20.6 22 P ( X < 20.6) = P (Z < ) = P (Z < 2.21) = 0.013 2/ 10 3. Uder the compay s claims the statistic: ( 1)S 2 is distributed as a chi-square with -1=9 degrees of freedom. Therefore: σ 2 ( 1)S 2 9 2.97 2 P (S > 2.97) = P ( > ) = P (χ 9 2 > 19.85) = 0.0188 σ 2 4 5

MIT OpeCourseWare http://ocw.mit.edu 15.075J / ESD.07J Statistical Thikig ad Data Aalysis Fall 2011 For iformatio about citig these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.