Scribd
Upload
328 views

Problem Set 1stats 2

This document contains a statistics for financial engineers problem set from Professor Martin Lettau at UC Berkeley. The problem set includes 5 problems covering topics such as: proving properties of infinite sequences of events, the law of total probability, machine quality probabilities, defective item probabilities for a machine with and without memory, and finding the constant and probability for a random variable with a given PDF. Students are asked to submit their solutions to these problems by January 20, 2016 via bCourses.

Uploaded by

JonahJunior
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
328 views

Problem Set 1stats 2

This document contains a statistics for financial engineers problem set from Professor Martin Lettau at UC Berkeley. The problem set includes 5 problems covering topics such as: proving properties of infinite sequences of events, the law of total probability, machine quality probabilities, defective item probabilities for a machine with and without memory, and finding the constant and probability for a random variable with a given PDF. Students are asked to submit their solutions to these problems by January 20, 2016 via bCourses.

Uploaded by

JonahJunior
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Statistics for Financial Engineers, Winter 2015

Professor Martin Lettau


Problem Set 1
Due January 20, 2016 6:00pm
To be submitted via bCourses
1. Let A1 , A2 , ... be an arbitrary infinite sequence of events, and let B1 , B2 , ...
be another infinite sequence of events defined as follows: B1 = A1 , B2 =
Ac1 A2 , B3 = Ac1 Ac2 A3 , B4 = Ac1 Ac2 Ac3 A4 ..... Prove that
!
n
n
[
X
Ai =
P r(Bi ) f or n = 1, 2, ...
Pr
i=1

i=1

and that
Pr

!
Ai

i=1

P r(Bi )

i=1

2. For any three events A, B, and D, such that P r(D) > 0, prove that
P r(A B|D) = P r(A|D) + P r(B|D) P r(A B|D).
3. Suppose that when a machine is adjusted properly, 50 percent of the items
produced by it are of high quality and the other 50 percent are of medium
quality. Suppose, however, that the machine is improperly adjusted during
10 percent of the time and that, under these conditions, 25 percent of the
items produced by it are of high quality and 75 percent are of medium
quality.
(a) Suppose that five items produced by the machine at a certain time are
selected at random and inspected. If four of these items are of high
quality and one item is of medium quality, what is the probability that
the machine was adjusted properly at that time?
(b) Suppose that one additional item, which was produced by the machine
at the same time as the other five items, is selected and found to be
of medium quality. What is the new posterior probability that the
machine was adjusted properly?
4. Consider a machine that produces items in sequence. Under normal operating conditions, the items are independent with probability 0.01 of being
defective. However, it is possible for the machine to develop a "memory"

This document is authorized for use by Victor Masango, from 1/1/2016 to 4/30/2016, in the course:
MFE: Statistics Preprogram - Lettau (Spring 2016), University of California, Berkeley.
Any unauthorized use or reproduction of this document is strictly prohibited.

in the following sense: After each defective item, and independent of anything that happened earlier, the probability that the next item is defective
is 2/5. After each nondefective item, and independent of anything that
happened earlier, the probability that the next item is defective is 1/165.
Assume that the machine is either operating normally for the whole time
we observe or has a memory for the whole time that we observe. Let B
be the event that the machine is operating normally, and assume that
P r(B) = 2/3. Let Di be the event that the ith item inspected is defective.
Assume that D1 is independent of B.
(a) Prove that P r(Di ) = 0.01 for all i. Hint: use induction.
(b) Assume that we observe the first six items and the event that occurs
is E = D1c D2c D3 D4 D5c D6c . That is, the third and fourth
items are defective, but the other four are not. Compute P r(B|E).
5. Suppose that the PDF of a random variable X is as follows:

ce2x f or x > 0,
f (x) =
0
otherwise.
(a) Find the value of the constant c and sketch the PDF.
(b) Find the value of P r(1 < X < 2).

This document is authorized for use by Victor Masango, from 1/1/2016 to 4/30/2016, in the course:
MFE: Statistics Preprogram - Lettau (Spring 2016), University of California, Berkeley.
Any unauthorized use or reproduction of this document is strictly prohibited.

You might also like