Preparatory Program in Mathematics

Module-II
Amit Vatsa
amitkv@iimahd.ernet.in
Introduction to Probability Theory
Probability: Quantitative measure of chance.
0.0 Absolutely no chance
1.0 Absolute certainty
Some terminology
Experiment Tossing a die
Event (Experimental outcome) 1,2,3,4,5,6
Elementary Event 1,2,3,4,5,6
Composite Event < 3, even, odd
A composite event includes more than one elementary outcomes.

Sample Space: A complete or exhaustive listing (set) of elementary events.
{1,2,3,4,5,6}
All elements in the sample space are mutually exclusive and collectively exhaustive.
(Composite events need not be mutually exclusive).
Example
1. Distributing 3 distinguishable balls in 2 cells. How many
possible outcomes? What is the sample space?

Let a, b, c be the 3 balls. Possible outcomes are:
{a b c| -}
{a b| c}
{a c| b}
{b c| a}
{a | b c}
{b | c a}
{c | a b}
{- | a b c}
Event : 1
st
cell is not empty?
Event: 1
st
cell contains two balls?
Example
1. Distributing 3 indistinguishable balls in 2 cells. How many
possible outcomes? What is the sample space?

Possible outcomes are:
{- | ***}
{*| **}
{**| *}
{***| -}
Event : 1
st
cell is not empty?
Event: 1
st
cell contains two balls?

Example
What is the sample space for two coin toss?
What is the sample space for two dice throws?
In a family of two children
Sample space of number of girls in the family
Are all outcomes equally likely??

Assumption: All elements in the sample space are equally likely
to occur???
How valid is this?

Throwing a die: sample space {1,2,3,4,5,6}
What is the chance of each elementary event occurring?
Can we now determine probabilities of composite events? How?

Composite Events
Event A: outcome of the toss is an even number.
Which elementary outcomes are favorable to event A? 2,4,6.
Since each of these has a 1 in 6 chance, P(A) = 3/6 = 0.5
Event B: outcome is divisible by 3
Favorable outcomes: 3, 6. P(B) = 2/6 = 0.333.
Complementary Event: The event in question does not occur.
Complement of event A is designated A.
What is P(A) ? Clearly 1-P(A). Why?
Sum of probabilities of events that are mutually exclusive and
collectively exhaustive is always 1.0.
Odds: ratio of favorable to unfavorable outcomes.
What are the odds that the outcome is divisible by 3? 2:4
If the odds of an event are a:b, then its probability is a/(a+b).

Joint or Non-exclusive Events
Two events are non-exclusive if they have one or more elementrary outcomes
common between them, i.e. they can occur together.
A: outcome is even.
B: outcome is divisible by 3.
Are they exclusive or non-exclusive? Why?
A Venn Diagram is useful

1
2
3
4 5
6
Sample space
A
B
Another example: Draw one card from a deck of 52 cards.
Event A: A Heart is drawn
Event B: A King is drawn
Are they exclusive?
A Black King is drawn
Probability of Union of Events
P(A or B) or P(AB)
If A and B are mutually exclusive events, P(A or B) = P(A)+P(B)
A Outcome of die toss is less then 3
B Outcome is divisible by 3
1
2
3
4 5
6
A
B
1
2
3
4
5
6
P(A or B) = 2/6+2/6 = 4/6 = 0.667
What if they are non-exclusive?
A Even number
B Divisible by 3
P(AB) = P(A)+P(B)-P(AB) General Rule of addition
P(AB) = 3/6+2/6-1/6 = 4/6
Example
Two dice are thrown
Probability both of them show 6?
Probability none of them show 6?
Probability at least one of them show 6?
Probability exactly one of them show 6?

Cell and ball problems




Independent Events
Draw a card from a deck.
Put it aside.
Now draw another card.
What is the probability that first card is a King?
What is the probability that second card is a King?
Does it depend of the first draw? Why?
What if the first card is put back in the deck before the second
draw? Does it still depend on the first draw? Why?
Two events are independent if the occurrence of non-occurrence
of one event has no effect on the probability of the other event.
They are dependent when the occurrence of one event does affect
the probability of the other event.
Probability of Intersection of Events
P(AB) = ?
Toss a coin twice
A : Head on first toss P(A) = 0.5
B : Head on second toss P(B) = 0.5
AB : Head on both tosses (Joint event)
P(AB) = P(A).P(B) (Joint probability)
This is true only when the two events are independent .
What if A and B are dependent?


Conditional Probability
Event A : A King on the first draw.
Event B : A King on the second draw.
P(A) = 4/52
What about of P(B)? It depends on whether first draw was a King or not.
If A occurred, probability of B = 3/51
If A did not occur, probability of B = 4/51.
Notice that there is a condition attached to the probability in each case.
P(B/A) = 3/51
P(B/A) = 4/51.
Why is the probability different in the two cases? Dependence!
Test of Independence
Events A and B are independent if P(A/B) = P(A/B) = P(A) and
P(B/A) = P(B/A) = P(B).
Here P(A) and P(B) are unconditional probabilities of the two events.
New Sample Space
Joint Probability
For two events A and B, what is the probability that both events
take place. P(A and B) or P(AB)
If A and B are independent events, P(A and B) = P(A).P(B)
What if they are dependent?
View this as a two step process:
A occurs.
Given that A has occurred, B occurs.
P(A and B) = P(A). P(B/A).
A die toss example:
A : outcome is less than 5
B : outcome is a multiple of 3
P(A) = 4/6, P(B) = 2/6, P(B/A) = ?
2
6
4
1
5
3
A
B
1/4
P(A and B) = (4/6).(1/4) = 1/6 P(B/A) = P(A and B) / P(A)
B

Total Probability Formula
Consider dependent events A and B.
P(B) = P(AB) + P(A' B)
= P(B/A)P(A) + P(B/A')P(A')
Consider a mutually exclusive and collectively exhaustive set of
events: A
1
, A
2
, A
3
,A
n
Let B be some event in the same sample space.
P(B) = P(BA
1
)+P(BA
2
)..+P(BA
n
)
= P(A
1
)P(B/A
1
)+P(A
2
)P(B/A
2
).+P(A
n
)P(B/A
n
)
A
1
A
2
A
4
A
3
Unconditional (Marginal) Probability of B
Revisit the Card experiment
A: King on first draw
B: King on second draw
We know the following probabilities:
P(A) = 4/52 P(A) = 1-P(A) = 48/52
P(B/A) = 3/51 P(B/A) = 4/51
Given these, can we compute P(B)?
Consider the following two joint events:
(A and B) P(A and B) = P(A).P(B/A) = (4/52)(3/51)
(A and B) P(A and B) = (A).P(B/A) = (48/52)(4/51)
These two are mutually exclusive events
They include all possible outcomes favorable to event B.
P(B) = P(A and B) + P(A and B)
P(B) = P(A).P(B/A) + P(A).P(B/A)

= 0.0045+0.0724 = 0.0769
It is exactly the same as 4/52 = 0.0769. Why?
Bayes Theorem
Revisit the Card drawing experiment again.
Event A : King on first draw
Event B : King on second draw
P(A), P(B/A) are easily determined. P(A) = 4/52, P(B/A) = 3/51.
Suppose we are interested in P(A/B)!!! How to find it?
Bayes theorem comes to our rescue.
Recall the joint probability formula
P(A and B) = P(A).P(B/A)
Reversing the role of events A and B, the following must also be true:
P(A and B) = P(B).P(A/B)
Combining the two, we get
P(A).P(B/A) = P(B).P(A/B)
Or P(A/B) = [P(A).P(B/A)]/P(B) Bayes Formula
Let us substitute P(B) = P(A)P(B/A) + P(A)P(B/A)
P(A/B) = [P(A).P(B/A)] / [P(A)P(B/A) + P(A)P(B/A)]

Female Male Total
Admin (A) 20 30 50
Operations (O) 60 170 230
Sales (S) 100 70 170
Totals 180 270 450
An employee is chosen at random:
What is the probability that the person is female?
that he is male working in administrative division?
works in operations, if the person is female?
is a female if the person works in operations?
Are S and M independent?
Are A and F independent?
Female Male Total
Admin (A) 0.0444 0.0666 0.111
Ops. (O) 0.1333 0.3777 0.511
Sales (S) 0.2222 0.1555 0.3777
Totals 0.4 0.6 1.0
An assembly plant receives parts from three suppliers B
1
, B
2
and B
3
. Fifty
percent of supply comes from B
1
, and 25 percent from B
2
and B
3
each. Parts
supplied by these three suppliers contain 5%, 10% and 12% defective parts
respectively.
If a part is chosen at random from the stock room, what is the probability
that it is defective?
If a randomly selected part was found to be good, what is the probability
that it came from B
2
?

Random Variable
Experiment Outcome Numerical Value
A random variable X maps the experimental outcome to a real number.
Consider tossing a coin 3 times.
Possible outcomes:
HHH, HHT, HTH, THH, HTT, THT, TTH, TTT
X No. of heads appearing in three tosses, X = 0,1,2,3
P(X = 0) = 1/8, P(X = 1) = 3/8, P(X=2) = 3/8, P(X=3) = 1/8
Random Variables are of two types:
Discrete: can take a finite number of fixed values
No. of empolyees absent, No. of cars sold
Continuous:
Qty. of cement produced
Diameter of the hole drilled.
weight of fertilizer packed in a bag.
Sometimes it is o.k. to approximate a discrete variable as a continuous one.
No. of customers visiting a bank branch.
No. of cars passing through a toll booth.
Bags of cement produced in a day by a cement plant.
Probability Distribution
Discrete Random variable
Assigns a probability value to each possible value of the random variable.
No. of head in 2 tosses 0 1 2
Probability 0.25 0.5 0.25
Sum of all probabilities must be 1.0.
Continuous Random variable
Can we assign a probability to each possible value? Why not?
Suppose X has a specific range of values (0,10)? Is it meaningful to talk about
P(X=3.71)?
We can assign a probability density.
It is only meaningful to talk about probability of X lying in an interval.
P(a s X s b) is given by the area under the density function curve between a and b.

a b
Binomial Distribution
The production process of a company produces 5% defective
items. If a random sample of 20 items is taken from the days
production, what is the probability that
There are no defective items in the sample.
There is only one defective item in the sample.
There are k defective items in the sample
Define random variable X as the number of defective items in a
sample of n (=20 in this case). What is the probability distribution
of random variable X?
Binomial Distribution
Bernoulli Trial
An experiment that has only two possible outcomes (Success/Failure)
e.g. tossing a coin
P(S) = p, P(F) = 1-p
Probability p is unchanged from one trial to next.
All trials are independent of each other.
Suppose that n such trial are conducted.
What is the number of successes in n trials?
It is a random variable. Range : 0 n.
What is the probability distribution of this random variable?
Consider a specific sequence of Successes and Failures: FSSFF
There are 2 Successes? X = 2
What is the probability of this specific sequence?
(1-p)pp(1-p)(1-p) = p
2
(1-p)
3
Is this the only sequence with 2 successes? SSFFF, SFSFF, SFFSF, SFFFS,
How many? (
5
2
). The probability of occurrence for each one is p
2
(1-p)
3
What is the total probability of getting 2 Successes out of 5 trials?
(
5
2
) p
2
(1-p)
3


Binomial Distribution
f(x) = P(X=x) = p(x;n,p) = (
n
x
) p
x
(1-p)
n-x
n and p are the parameters of the distribution.
Expected Value of a Random Variable. (Mean value)
E(X) = x.f(x)
For Binomial distribution E(X) =
x
= n.p
Variance V(X)
V(X) = (x E(x))
2.
f(x)
Variance of Binomial Distribution: V(X) = o
x
2
= [n.p.(1-p)]
o
x
=
\[n.p.(1-p)]
How is the variance affected by n and p?

Binomial
Probabilities
N = 10, p = 0.05
x p(x)
0 0.5987
1 0.3152
2 0.0746
3 0.0105
4 0.0009
5 0.0001
6 0.0000
7 0.0000
8 0.0000
9 0.0000
10 0.0000
Binomial
Probabilities
N = 10, p = 0.50
x p(x)
0 0.0010
1 0.0097
2 0.0440
3 0.1172
4 0.2051
5 0.2460
6 0.2051
7 0.1172
8 0.0440
9 0.0097
10 0.0010
Binomial
Probabilities
N = 10, p = 0.95
x p(x)
0 0.0000
1 0.0000
2 0.0000
3 0.0000
4 0.0000
5 0.0001
6 0.0009
7 0.0105
8 0.0746
9 0.3152
10 0.5987
Applications of Binomial Distribution
The production process of a particular product produces 5% defective units. A
customer has ordered a batch of 20 units. If the batch contains 3 or more
defective units, the customer will reject the entire batch, and cancel the order.
What is probability that the order will be cancelled?
What is the maximum permissible percentage of defectives in the production
process so that the probability of rejection is reduced to less than 1%?
P(Rejection) = 1- P(X s2) = 1- [P(X=0)+P(X=1)+P(X=2)]
P(X s2) = (
20
0
) p
0
(1-p)
20
+(
20
1
) p
1
(1-p)
19
+(
20
2
) p
2
(1-p)
18
= 0.3585+0.3774+0.1887 = 0.9246
P(rejection) = 0.0754
The management of a restaurant that operates on reservations
only, knows from experience that 15% of persons making table
reservations will not show up. If the restaurant accepts 25
reservations, but has only 20 tables, what is the probability that all
who show up will be accomodated?
The management of a restaurant that operates on reservations
only, knows from experience that 15% of persons making table
reservations will not show up. If the restaurant accepts 25
reservations, but has only 20 tables, what is the probability that all
who show up will be accomodated?
Poisson Distribution
Consider n and p 0
But Lim n.p =
There are 100000 vehicles on the streets of Ahmedabad
On a given day, probability of a vehicle meeting with an accident is
0.00005.
n.p = = 5 accidents per day (accident rate)
The actual values of n and p are not important, as long as is known.
A Bank has 10000 customers. The probability of customer arriving on a
given day is 0.005.
= 50. Customer arrive at a rate of 50 per day (arrival rate).
The actual number of customers arriving may range from 0 to (actually
10000).
A machine produces 50000 parts per day, with 0.001 probability of a part
being defective. What is the number of defective parts produced in a day?

Random variable X : No. of customer arriving in one hour.
No. of accidents taking place in a day.
No. of defective parts produced in a day.

What is the probability distribution of X?
Can we use Binomial here? What is the difficulty?
Poisson Distribution is a limiting case of Binomial
as n and p 0 Lim n.p =

Poisson Distribution
P(x, ) =
e
-

x
----------
x!
E(X) = , V(X) =
n = 10
p = 0.2
0.1074
0.2684
0.3020
0.2013
0.0881
0.0264
0.0055
0.0008
0.0001
0.0000
n=20
p = 0.1
0.1216
0.2702
0.2852
0.1901
0.0898
0.0319
0.0089
0.0020
0.0004
0.0001
n = 40
p = 0.05
0.1285
0.2706
0.2777
0.1851
0.0901
0.0342
0.0105
0.0027
0.0006
0.0001
n = 100
p = 0.02
0.1326
0.2707
0.2734
0.1823
0.0902
0.0353
0.0114
0.0031
0.0007
0.0002

X
0
1
2
3
4
5
6
7
8
9
Poisson
= 2
0.1353
0.2707
0.2707
0.1804
0.0902
0.0361
0.0120
0.0034
0.0009
0.0002
Poisson Tables
Poisson approximation of
Binomial,
n>20 and p<0.05
Negative Binomial Distribution
Consider a sequence of Bernoulli trials.
Binomial : X - No. of successes in n trials.
Negative Binomial
Suppose you wish to continue conducting trials until a desired number of
successes are achieved.
Random Variable X How many failures take place before the desired
number, k, of successes occur?
If k = 3, and the sequence FFSFSFFFS results, then X = 6.
Last trial must be a success. Why?
x+k-1 trials are conducted before the last one.
What is the number of possible sequences with x failure and k-1
successes?
x+k-1
C
x.
Each one has probability p
k
(1-p)
x
P(X=x) = P(x;k,p) =
x+k-1
C
x
p
k
(1-p)
x

Negative Binomial Distribution
k(1-p)
-------
p
2

V(X) =
k(1-p)
-------
p
E(X) =
A machine has a 60% chance that it will be able to produce a
part of acceptable quality. If five parts are to be produced, what
is the probability that no more than 7 attempts are required to
produce them? What is the average number of attempts
required?
Geometric Distribution
Geometric Distribution : A special case of Negative Binomial Dist.
Let k = 1
How many failures before the first success?
x+k-1
C
x
p
k
(1-p)
x
P(x;p) = p(1-p)
x
(1-p)
-------
p
E(X) =
(1-p)
-------
p
2

V(X) =
k(1-p)
-------
p
2

V(X) =
k(1-p)
-------
p
E(X) =
ISRO is testing a new design of satellite launching rocket. The
probability of a successful test launch is 0.7. What is the
probability that they will achieve a successful launch within 4
attempts?
P(X=0) + P(X=1) + P(X=2) + P(X=3)

Hypergeometric Distribution
Binomial
Select sample of size n from a potentially infinite population.
View selection of n items as a sequential process.
Probability p is unaffected by previous selections.
What if the population is finite?
In a population of 10 items, 5 are defective.
p = 0.5 for the first item.
For second item, p depends on the outcome of first selection.
First item defective p = 4/9
Not defective p = 5/9
Given a population of N items containing k=Np defectives, if n
items are selected at random, what is the probability of getting x
defective items? Hypergeometric Distribution.
Range of x is from 0 to min(n,k)


Hypergeometric Distribution
Red/Black Balls.
N total number of balls
Np No. of black balls (defective items)
N-Np No. of red balls (good items)
P(x;N,n,p) =
(
Np
x
) (
N-Np

n-x
)
----------------
(
N
n
)
As N becomes large, or n/N becomes small, these probabilities
tend to Binomial probabilities.
Example
A box has 3 red and 4 black balls. If four balls are selected at
random, what is the probability of getting two red and two black
balls.


Continuous Probability Distributions
Uniform Distribution (Rectangular Distribution)
Random Variable X lies in the interval (a,b), i.e. aXb
All values of X are equally likely. (Uniform)
Probability Density is the same everywhere.
a
b
1/(b-a)
f(x;a,b) =
1/(b-a) a x b
0 elsewhere
{
F(x;a,b) =
{
0 x < a
(x-a)/(b-a) a x b
1 x > b
t
P(xt)
Expectation and Variance
E(X) = = }
a
b
x.f(x).dx
V(X) = o
2
= }
a
b
(x-)
2
.f(x).dx
For Uniform Distribution
E(X) = (a+b)/2
V(X) = (b-a)
2
/12, o
x
= (b-a)/2\3
A special case : a = 0, b = 1 Uniform(0,1)
E(X) = 0.5, V(X) = 1/12, o
x
= 1/2\3

Digression to Moments and Kurtosis
E(X) =
1
= }
-

x.f(x).dx
V(X) =
2
= }
-

(x-
1
)
2
.f(x).dx

3
= }
-

(x-
1
)
3
.f(x).dx

4
= }
-

(x-
1
)
4
.f(x).dx
First Moment about zero (Mean)
Second central Moment (Variance)
Third Central Moment (Skewness)
Fourth Central Moment (Kurtosis)
First moment defines the location
Higher Moments define the shape
Relative Values are more meaningful.
Coefficient of Variation o/
Relative Kurtosis o
4
=
4
/
2
2



Relevance of Kurtosis
Mesokurtic (Normal Dist.) o
4
=3
Leptokurtic o
4
>3
Platykurtic o
4
< 3
Kurtosis indicates the Peakedness of the distribution.
Normal Distribution is viewed as a reference point, neither very
high, nor very low in terms of peakedness.
Leptokurtic Higher Peakedness compared to Normal.
Platykurtic Lower Peakedenss compared to Normal.
Uniform Distribution? Leptokurtic or Platykurtic?
o
4
=1.8

Normal Distribution
Also called Gaussian Disribution.
Most important and most widely used.
Symmetrical, bell shaped, extends infinitely in both directions.
Many naturally occurring data follows Normal Distribution
Temperature, rainfall, measurements of living organisms.
Measurements of manufactured parts, errors and deviations from norms.
Density Function

(
(

|
.
|

\
|

=
2
2
1
exp
2
1
) , ; (
o

o t
o
x
x f
Two parameters: - mean, o - standard deviation
dx
x
x X E .
2
2
1
exp
2
1
. ) (
(
(
(

|
|
.
|

\
|
=

o

o t
dx
x
x X V .
2
2
1
exp
2
1
.
2
) ( ) (
(
(
(

|
|
.
|

\
|
=


}

o

o t

=
= o
2

(

=
2
2
exp
2
1
) 1 , 0 ; (
x
x f
t
Standard Normal Dist.
o = 5
o = 15
= 0
o = 10
Distribution shifts by o, if o is added to random variable X.
Distribution shrinks or expands if X is multiplied by o. The mean stays at zero.

= 10
X
= 5
X-5
= 15
X+5
F(b)
Computing Normal Probabilities
How to find P(asxsb)?
Evaluate the integral of f(x) from a to b.
Alternatively, P(asxsb) = F(b) F(a)
a b
F(a)
No closed form solution to integral of f(x).
Numerical integration by computer is only way.
Tables of F(x) available in text books are useful.
What about the parameters and o?
Do we need a separate table for each and o combination?
One table is enough for all. How?
Standard Normal Distribution
Suppose X ~ N(,o)
Consider Z = X- as a random variable.
What is the mean and variance of Z? What is the distribution of Z?
Z ~ N(0,o)
P(X s a) = ?
Substitute X = Z+
P(X s a) = P(Z+ s a) = P(Z s a-)
a a-10
= 10
X
= 0
Z
Standard Normal Distribution
X ~ N(0,o)
Consider Z = X/o as a random variable.
What is the mean and variance of Z? What is the distribution of Z?
Z ~ N(0,1)
P(X s a) = ?
Substitute X = Zo
P(X s a) = P(Zo s a) = P(Z s a/o)


o = 2
o = 1
a a/2
Standard Normal Distribution
Given X~N(,o), define Z = (X- )/o.
Then Z ~ N(0,1)
P(X s a) = P(Z s(a- )/o)
Table of F(z) = P(Z sz) are available and can be used to find
cumulative probability for Normal distribution with any mean and
standard deviation.

N(,o)
N(0,1)
a
Z
a
= (a- )/o
z value corresponding to a
Daily cement production of a plant follows normal distribution
with mean of 50 tons and standard deviation of 3.5 tons. On how
many days in a year the production exceeds 58 tons.
=50, o=3.5
X ~ N(50,3.5)
Z
58
= (55-50)/3.5 = 1.43
P(X > 55) = P(Z > 1.43)
= 1- P(Z s 1.43)
P(Z s 1.43) = 0.9236
P(Z > 1.43) = 0.0764 = P(X > 55)
Ans = 365*0.0764 = 28 days
The amount of time to assemble a computer is normally distributed
with a mean of 50 minutes and standard deviation of 10 minutes.
Find the probability that the computer is assembled between 45
and 60 minutes.
Mensa is an organization whose members possess IQs that are in
the top 2% of the population. It is known that IQs are normally
distributed with a mean of 100 and standard deviation of 16. Find
the minimum IQ needed to be a Mensa member.
The annual rate of return on a mutual fund is normally distributed
with a mean of 14% and a standard deviation of 18%.
What is the probability that the fund returns more than 25%
next year?
What is the probability that the fund loses money next
year?
A automatic pesticide packing machine is used to fill 500 g.
pesticide powder in a carton. The standard deviation of the amount
filled by the machine is 4 grams. The management wants that no
more than 2% of the cartons filled should have less than 500 grams
pesticide in it. What amount should the machine be programmed to
fill?
The lifetime of TVs produced by a company are normally
distributed with a mean of 75 months and a standard deviation of 8
months. If the manufacturer wants to have to replace only 1% of
the TVs, what should its warranty be?
Every day a bakery prepares its famous cup-cakes. The daily
demand for cakes is normally distributed with a mean of 850 and a
standard deviation of 90. How many cup-cakes should the bakery
make so that the chances of running short on any day is not more
than 20%.
Normal Approximation of Binomial
Let X ~ Binomial(n,p)

x
= np, o
x
= \[np(1-p)]
Define random variable Y = (X-np)/\[n.p(1-p)]
As n, distribution of Y approaches N(0,1).
Though X is discrete, as n increases, it approaches continuity.
Normal is a reasonable approximation of Binomial when
np > 5 if p <
n(1-p) > 5 if p >
1 2 3 4 5 6 7
Example: What is the probability of 3 or fewer heads in 10 tosses?
n = 10, p = 0.5, np = = 5, o = \2.5 = 1.58
Z
3.5
= (3.5-5)/1.58 = -0.95
F
Z
(-0.95) = 0.1711
From Binomial Tables, P(X <= 3) = 0.1719

Use Excel to plot the F(x) for both.

Normal Approximation of Poisson
If is large, Poisson distribution may also be approximated by
Normal.
E(X) = V(X) = for Poisson. So = and o = \ .

Example: If X follows Poisson distribution with =25, find the
probability of X=20 using normal approximation.
P(19.5<X<20.5) = P(-1.1<Z<-0.9) = F(-0.9) F(-1.1)
= 0.1841 0.1357 = 0.0484

P(X=20) = 0.0519 using Poisson Formula
Exponential Distribution
Also called Negative Exponential
f(x;) = ()exp(-x) x > 0
E(X) = 1/, V(X) = 1/
2
, i.e. o = 1/
o
3
= 2 (Skewed Right)
o
4
= 9 (Highly Leptokurtic)
F(x;) = 1-exp(-x)
a
is called Arrival
Rate or Failure Rate
Memory-less Property
Exponential distribution is used to model customer arrivals in
queuing systems (e.g. a bank window)
What is the probability that a customer will arrive in next 5
minutes? P(X s 5).
Suppose that no customer arrives in the 5 minutes.
Given this, what is the probability that a customer will arrive in
next 5 minutes? P(X s 10/ X > 5)
After 10 minutes? P(X s 15/ X > 10)
For exponential distribution, it is the same as P(X s 5), no matter
how long you have waited.
P(Xs t+o / X> t) = P(X s o) for any value of t
A : X s t+o
B : X> t
Memory-less Property
P(A) = P(X s t+o) = 1-e
-(t+o)
P(B) = P(X > t) = e
-t
P(A/B) = P(AB)/P(B)
P(AB) = P(tsXst+o) = F(t+o)-F(t)
(1-e
-(t+o)
) (1-e
-t
) = e
-t
- e
-(t+o)
P(A/B) = 1 - e
-o
= P(X s o)

Conditional Distribution
Relationship between Poisson and Exponential
Consider Arrival of customers in bank.
Time between two successive arrivals follows Exponential Dist.
Consider an interval of time of duration t.
How many customers will arrive in this interval?
Discrete Random Variable.
Follows Poisson distribution with parameter t.

P(x, ) =
e
-

x
----------
x!
P(x, t ) =
e
- t
(t)
x
----------
x!
Poisson Process
Probability Distributions
Bernoulli Trial
Binomial(n,p)
Negative
Binomial(k,p)
Geometric(p)
k = 1
Poisson()
n , p 0
Normal(,o)
np > 5
Exponential()
large
Uniform(a,b)
?