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

Similar documents
Sequences and Series

5. Best Unbiased Estimators

Asymptotics: Consistency and Delta Method

14.30 Introduction to Statistical Methods in Economics Spring 2009

x satisfying all regularity conditions. Then

Rafa l Kulik and Marc Raimondo. University of Ottawa and University of Sydney. Supplementary material

Summary. Recap. Last Lecture. .1 If you know MLE of θ, can you also know MLE of τ(θ) for any function τ?

Introduction to Probability and Statistics Chapter 7

SELECTING THE NUMBER OF CHANGE-POINTS IN SEGMENTED LINE REGRESSION

0.1 Valuation Formula:

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

1 Estimating sensitivities

Lecture 5 Point Es/mator and Sampling Distribu/on

The Limit of a Sequence (Brief Summary) 1

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

STAT 135 Solutions to Homework 3: 30 points

11.7 (TAYLOR SERIES) NAME: SOLUTIONS 31 July 2018

Probability and statistics

Fourier Transform in L p (R) Spaces, p 1

EXERCISE - BINOMIAL THEOREM

Section Mathematical Induction and Section Strong Induction and Well-Ordering

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

Parametric Density Estimation: Maximum Likelihood Estimation

Solutions to Problem Sheet 1

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

Sampling Distributions and Estimation

Unbiased estimators Estimators

1 The Black-Scholes model

Notes on Expected Revenue from Auctions

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

Lecture 5: Sampling Distribution

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

A New Constructive Proof of Graham's Theorem and More New Classes of Functionally Complete Functions

Research Paper Number From Discrete to Continuous Time Finance: Weak Convergence of the Financial Gain Process

Math 312, Intro. to Real Analysis: Homework #4 Solutions

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

5 Statistical Inference

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

Sampling Distributions and Estimation

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

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

Statistics for Economics & Business

EVEN NUMBERED EXERCISES IN CHAPTER 4

ST 305: Exam 2 Fall 2014

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

Monetary Economics: Problem Set #5 Solutions

Supplemental notes for topic 9: April 4, 6

4.5 Generalized likelihood ratio test

ASYMPTOTIC MEAN SQUARE ERRORS OF VARIANCE ESTIMATORS FOR U-STATISTICS AND THEIR EDGEWORTH EXPANSIONS

STAT/MATH 395 PROBABILITY II

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

Lecture 4: Probability (continued)

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

Sampling Distributions & Estimators

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

Maximum Empirical Likelihood Estimation (MELE)

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

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

Diener and Diener and Walsh follow as special cases. In addition, by making. smooth, as numerically observed by Tian. Moreover, we propose the center

1 Random Variables and Key Statistics

Topic 14: Maximum Likelihood Estimation

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

CHAPTER 8 Estimating with Confidence

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

Chapter 13 Binomial Trees. Options, Futures, and Other Derivatives, 9th Edition, Copyright John C. Hull

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

Outline. Populations. Defs: A (finite) population is a (finite) set P of elements e. A variable is a function v : P IR. Population and Characteristics

The material in this chapter is motivated by Experiment 9.

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

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

AMS Portfolio Theory and Capital Markets

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

B = A x z

Quantitative Analysis

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

BOUNDS FOR TAIL PROBABILITIES OF MARTINGALES USING SKEWNESS AND KURTOSIS. January 2008

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

FOUNDATION ACTED COURSE (FAC)

= 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.

Confidence Intervals Introduction

CHAPTER 2 PRICING OF BONDS

Quantitative Analysis

Topic-7. Large Sample Estimation

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

INTERVAL GAMES. and player 2 selects 1, then player 2 would give player 1 a payoff of, 1) = 0.

Estimating Proportions with Confidence

1 Basic Growth Models

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

BASIC STATISTICS ECOE 1323

Monopoly vs. Competition in Light of Extraction Norms. Abstract

Simulation Efficiency and an Introduction to Variance Reduction Methods

Valuation of options on discretely sampled variance: A general analytic approximation

Discriminating Between The Log-normal and Gamma Distributions

. The firm makes different types of furniture. Let x ( x1,..., x n. If the firm produces nothing it rents out the entire space and so has a profit of

Generative Models, Maximum Likelihood, Soft Clustering, and Expectation Maximization

Online appendices from The xva Challenge by Jon Gregory. APPENDIX 10A: Exposure and swaption analogy.

Strong consistency of nonparametric Bayes density estimation on compact metric spaces

Solution to Tutorial 6

Average Distance and Vertex-Connectivity

We analyze the computational problem of estimating financial risk in a nested simulation. In this approach,

Transcription:

Lecture 9: The law of large umbers ad cetral limit theorem Theorem.4 Let X,X 2,... be idepedet radom variables with fiite expectatios. (i) (The SLLN). If there is a costat p [,2] such that E X i p i i= p <, () the (X i EX i ) a.s. 0. i= (ii) (The WLLN). If there is a costat p [,2] such that the lim p i= i= E X i p = 0, (2) (X i EX i ) p 0. UW-Madiso (Statistics) Stat 709 Lecture 9 208 / 5

Remarks Note that () implies (2) (Lemma.6). The result i Theorem.4(i) is called Kolmogorov s SLLN whe p = 2 ad is due to Marcikiewicz ad Zygmud whe p < 2. A obvious sufficiet coditio for () with p (,2] is sup E X p <. The WLLN ad SLLN have may applicatios i probability ad statistics. Example.32 Let f ad g be cotiuous fuctios o [0,] satisfyig 0 f (x) Cg(x) for all x, where C > 0 is a costat. We ow show that lim 0 0 i= f (x i) 0 i= g(x i) dx dx 2 dx = 0 f (x)dx 0 g(x)dx (3) (assumig that 0 g(x)dx 0). UW-Madiso (Statistics) Stat 709 Lecture 9 208 2 / 5

Example.32 (cotiued) X,X 2,... be i.i.d. radom variables havig the uiform distributio o [0,]. By Theorem.2, E[f (X )] = f (x)dx <, E[g(X )] = g(x)dx <. 0 0 By the SLLN (Theorem.3(ii)), i= By Theorem.0(i), f (X i ) a.s. E[f (X )], i= f (X i) i= g(x i) a.s. i= g(x i ) a.s. E[g(X )], E[f (X )] E[g(X )]. (4) Sice the radom variable o the left-had side of (4) is bouded by C, result (3) follows from the domiated covergece theorem ad the fact that the left-had side of (3) is the expectatio of the radom variable o the left-had side of (4). UW-Madiso (Statistics) Stat 709 Lecture 9 208 3 / 5

Example Let T = i= X i, where X s are idepedet radom variables satisfyig P(X = ± θ ) = 0.5 ad θ > 0 is a costat. We wat to show that T / a.s. 0 whe θ < 0.5. For θ < 0.5, EX 2 = 2 = = 2θ 2 <. By the Kolmogorov strog law of large umbers, T / a.s. 0. Example (Exercise 65) Let X,X 2,... be idepedet radom variables. Suppose that (X j EX j ) d N(0,), σ where σ 2 = var( X j). UW-Madiso (Statistics) Stat 709 Lecture 9 208 4 / 5

Example (Exercise 65) We wat to show that (X j EX j ) p 0 iff σ / 0. If σ / 0, the by Slutsky s theorem, (X j EX j ) = σ σ (X j EX j ) d 0. Assume ow σ / does ot coverge to 0 but (X j EX j ) p 0. Without loss of geerality, assume that σ / c (0, ]. By Slutsky s theorem, σ (X j EX j ) = σ (X j EX j ) p 0. This cotradicts the fact that (X j EX j )/σ d N(0,). Hece, (X j EX j ) does ot coverge to 0 i probability. UW-Madiso (Statistics) Stat 709 Lecture 9 208 5 / 5

The cetral limit theorem The WLLN ad SLLN may ot be useful i approximatig the distributios of (ormalized) sums of idepedet radom variables. We eed to use the cetral limit theorem (CLT), which plays a fudametal role i statistical asymptotic theory. Theorem.5 (Lideberg s CLT) Let {X j,j =,...,k } be idepedet radom variables with k as ad If the σ 2 k 0 < σ 2 = var ( k ) X j <, =,2,..., [ ] E (X j EX j ) 2 I { Xj EX j >εσ } 0 for ay ε > 0, (5) k σ (X j EX j ) d N(0,). UW-Madiso (Statistics) Stat 709 Lecture 9 208 6 / 5

Proof Cosiderig (X j EX j )/σ, without loss of geerality we may assume EX j = 0 ad σ 2 = i this proof. Let t R be give. From the iequality e tx ( + tx t 2 x 2 /2) mi{ tx 2, tx 3 }, the ch.f. of X j satisfies φ X j (t) ( t 2 σ 2 j /2 ) E ( ) mi{ tx j 2, tx j 3 }, where σ 2 j = var(x j ). For ay ε > 0, the right-had side of the previous expressio is bouded by E( tx j 3 I { Xj <ε}) + E( tx j 2 I { Xj ε}), which is bouded by ε t 3 σ 2 j + t2 E(X 2 j I { X j ε}). UW-Madiso (Statistics) Stat 709 Lecture 9 208 7 / 5

Proof (cotiued) Summig over j ad usig σ 2 =, we obtai that k ( ) φ X j (t) t 2 σj 2 /2 k {ε t 3 σj 2 + t2 E(Xj 2 I { X j ε})} = ε t 3 + t 2 k by coditio (5). Also by coditio (5) ad σ 2 =, σj 2 max j k σ 2 Sice ε > 0 is arbitrary ad t is fixed, ad k E(X 2 j I { X j ε}) ε t 3 ε 2 + max j k E(X 2 j I { X j >ε}) ε 2 φ X j (t) ( t 2 σ 2 j /2 ) 0 lim max σj 2 j k σ 2 = 0. (6) UW-Madiso (Statistics) Stat 709 Lecture 9 208 8 / 5

Proof (cotiued) This implies that t 2 σ 2 j are all betwee 0 ad for large eough. Usig the iequality a a m b b m m a j b j for ay complex umbers a j s ad b j s with a j ad b j, j =,...,m, we obtai that k e t2 σj 2 /2 k ( ) t 2 σj 2 /2 k ( ) σ 2 e t2 j /2 t 2 σj 2 /2, which is bouded by t 4 k σ 4 j t 4 max j k σ 2 j 0, sice e x x x 2 /2 if x 2 ad k σ 2 j = σ 2 =. UW-Madiso (Statistics) Stat 709 Lecture 9 208 9 / 5

Proof (cotiued) The k φ Xj (t) k e t2 σ 2 j /2 k k + 0 φ X j (t) e t2 σ j 2 /2 ( ) φ X j (t) t 2 σj 2 /2 k ( ) σ 2 e t2 j /2 t 2 σj 2 /2 as previously show. Thus, k φ Xj (t) = k e t2 σ 2 j /2 + o() = e t2 /2 + o() i.e., the ch.f. of k X j coverges to the ch.f. of N(0,) for every t. By Theorem.9(ii), the result follows. UW-Madiso (Statistics) Stat 709 Lecture 9 208 0 / 5

Remarks Coditio (5) is called Lideberg s coditio. From the proof, Lideberg s coditio implies (6), which is called Feller s coditio. Feller s coditio (6) meas that all terms i the sum σ 2 = k σ 2 j are uiformly egligible as. If Feller s coditio is assumed, the Lideberg s coditio is ot oly sufficiet but also ecessary for the result i Theorem.5, which is the well-kow Lideberg-Feller CLT. A proof ca be foud i Billigsley (995, pp. 359-36). Note that either Lideberg s coditio or Feller s coditio is ecessary for the result i Theorem.5 (Exercise 58). Liapouov s coditio A sufficiet coditio for Lideberg s coditio is the followig Liapouov s coditio, which is somewhat easier to verify: k E X j EX j 2+δ 0 for some δ > 0. (7) σ 2+δ UW-Madiso (Statistics) Stat 709 Lecture 9 208 / 5

Example.33 Let X,X 2,... be idepedet radom variables. Suppose that X i has the biomial distributio Bi(p i,), i =,2,..., ad that σ 2 = i= var(x i) = i= p i( p i ) as. For each i, EX i = p i ad E X i EX i 3 = ( p i ) 3 p i + p 3 i ( p i) 2p i ( p i ). Hece i= E X i EX i 3 2σ 2, i.e., Liapouov s coditio (7) holds with δ =. Thus, by Theorem.5, σ i= (X i p i ) d N(0,). (8) It ca be show (exercise) that the coditio σ is also ecessary for result (8). The followig are useful corollaries of Theorem.5 ad Theorem.9(iii). UW-Madiso (Statistics) Stat 709 Lecture 9 208 2 / 5

Corollary.2 (Multivariate CLT) For i.i.d. radom k-vectors X,...,X with a fiite Σ = var(x ), Corollary.3 (X i EX ) d N k (0,Σ). i= Let X i R m i, i =,...,k, be idepedet radom vectors with m i m (a fixed iteger), =,2,..., k as, ad if i, λ [var(x i )] > 0, where λ [A] is the smallest eigevalue of A. Let c i R m i be vectors such that ( lim max c i 2 i k / k ) c i 2 = 0. i= (i) If sup i, E X i 2+δ < for some δ > 0, the k / [ /2 ci τ k (X i EX i ) var(ci i)] τ X d N(0,). (9) i= i= (ii) If wheever m i =m j, i <j k, =,2,..., X i ad X j have the same distributio with E X i 2 <, the (9) holds. UW-Madiso (Statistics) Stat 709 Lecture 9 208 3 / 5

Remarks Provig Corollary.3 is a good exercise. Applicatios of these corollaries ca be foud i later chapters. More results o the CLT ca be foud, for example, i Serflig (980) ad Shorack ad Weller (986). More o Pólya s theorem Let Y be a sequece of radom variables, {µ } ad {σ } be sequeces of real umbers such that σ > 0 for all, ad The, by Propositio.6, (Y µ )/σ d N(0,). lim sup F (Y µ )/σ (x) Φ(x) = 0, (0) x where Φ is the c.d.f. of N(0,). UW-Madiso (Statistics) Stat 709 Lecture 9 208 4 / 5

Asymptotic ormality (0) implies that for ay sequece of real umbers {c }, lim P(Y c ) Φ ( c µ ) = 0, σ i.e., P(Y c ) ca be approximated by Φ ( c µ ) σ, regardless of whether {c } has a limit. Sice Φ ( t µ ) σ is the c.d.f. of N(µ,σ 2 ), Y is said to be asymptotically distributed as N(µ,σ 2 ) or simply asymptotically ormal. Examples For example, k i= cτ i X i i Corollary.3 is asymptotically ormal. This ca be exteded to radom vectors. For example, i= X i i Corollary.2 is asymptotically distributed as N k (EX,Σ). UW-Madiso (Statistics) Stat 709 Lecture 9 208 5 / 5