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Compound Distributions

Definition Suppose a RV, X, follows a certain distribution with

parameter θ,
X ∼ f (x; θ),
but θ itself is another RV — say, with its own distribution

θ ∼ π(θ; ·),
then X has a so-called compound distribution, with (marginal)
distribution
X Z
f (x) = f (x|θ)π(θ) or f (x|θ)π(θ)dθ.
θ

Remark Important concept for hierarchical models, and

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Bayesian analysis.

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Example 0

Suppose

X|n ∼ Binomial(n, p) and n ∼ Poisson(λ).

What’s the marginal distribution of X?

Remark For example, n may be the number of customers and

X may be the number of sales.

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Example 1

Suppose

X|p ∼ Binomial(n, p) and p ∼ Uniform(0, 1).

(a) What’s the marginal distribution of X?

(b) Now suppose that, given p, Xnew is another Bernoulli(p)
random variable which is independent of X. What’s
P(Xnew = 1|X = x)?

Remark For example, we may be conducting a series of

independent Bernoulli trials but have no idea a priori how big the
success rate is for each trial.

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Example 2

Suppose

X|λ ∼ Poisson(λ) and λ ∼ Gamma(α, β).

What’s the marginal distribution of X?

Remark For example, X may be the number of insurance

claims, and λ may be a quantitative measure of the propensity for
risky behavior.

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