NCKU IIM Stochastic Process

Homework #1
This assignment has five problems and will be graded out of 100 points. Please show all work (or
hand in computer printouts if you use Excel/Maple/etc. to do calculations) in order to receive full
credit.

PROBLEM 1:
A system has two components, A and B. The operating times until failure of each component (call
them TA and TB) are independent and exponentially distributed random variables, with means equal
to 6 months for component A and 4 months for component B. The system can operate only if both
components are working.

(a) Let TS denote the time to system failure. Clearly, we have TS = min{TA, TB} .

Determine the distribution of TS and compute the mean time to system failure.

(b) Compute the probability that it is component A that causes the system failure.
[HINT: Use the continuous version of the law of total probability: if X and Y are random
variables and Y has density f, then for any a we have

P( X ≤ a ) = ∫ P( X ≤ a | Y = s ) f ( s )ds.

In particular,

P (X ≤ Y=
) ∫ P( X ≤ Y |Y = s) f (s)ds = ∫ P( X ≤ s | =
Y s ) f ( s )ds .]

(c) Suppose component A fails first. What is the mean remaining operating life of
component B?

PROBLEM 2:
Suppose we roll two six-sided dice. Let L be the larger value of the two and S be the smaller value.
(a) What is the probability that L = 5 given that S = 3?
(b) What is the probability that S = 3?
(c) For each k = 1 , 2 , 3 , 4 , 5 , 6 , what is E[ L | S = k] ?
(d) Using your answers from part c, calculate E[L].
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(Note that by the law of total probability E[L]= ∑ E [L | S=k]P(S = k) )
k =1

HINT: You might find it helpful to write out all of the possibilities that come from rolling two
six-sided dice.

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PROBLEM 3:
Write an algorithm involving the function random ( ) to generate values from each distribution.
In each case, what value is generated if random ( ) returns the values 0.1, 0.5 and 0.9 ?
(a) The uniform distribution on the interval [α , β ]
 0 , a <α
 a − α
F (a) =  , α ≤a≤β
β −α , β <a
 1
Use α = 0 and β = 4
(b) The Weibull distribution with scale parameter α > 0 and shape parameter β > 0
(when α = 1 this is the exponential distribution)

 0 , a≤0
F (a ) =  − ( a )α
β
1 − e , 0<a
1
Use α = and 2, and β = 1 .
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(c) A discrete distribution
 0 , a <1
 0.3 , 1≤ a < 2

 0.4 , 2≤a<3
F (a) = 
 0.7 , 3≤ a < 4
0.95 , 4≤a<6

 1 , 6≤a

PROBLEM 4:
Show the following relationships:
(a) Cov(aX + b, cY + d) = ac Cov(X,Y), where a ,b, c, and d are constants.
(b) Var(X ± Y) = Var(X) + Var(Y) ± 2 Cov(X, Y).
(c) If X and Y are independent then Cov(X, Y) = 0. (Hint: Use the fact that f(x,y)=g(x)h(y) due to
independence and the definition of covariance in terms of expected values.)

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PROBLEM 5:
Consider an insurance agency with 15,000 customers who have both auto and homeowners
policies. Let X and Y be discrete r.v.’s, where X = the deductible amount on the auto policy and
Y=the deductible amount on the homeowner policy. A summary of these policies is shown below.
Number of Customers
Y (Home Policy Deductible)
$0 $100 $200
$100 3000 1500 3000 7500
X (Auto Policy Deductible)
$250 750 2250 4500 7500
3750 3750 7500 15,000

(a) Find the marginal p.m.f.’s of X and Y. Are X and Y statistically independent?
(b) Find the conditional distribution of Y given X.
(c) Find the covariance of X and Y.