Chapter 13

In This Chapter

Understanding the properties of discrete probability distributions: the binomial and Poisson

Exploring continuous probability distributions: the normal, Student’s t, lognormal, chi-square, and F

Implementing statistical tests of randomness

Chapter 4 introduces the notion of a *probability distribution.* You use a probability distribution to describe the properties of a random variable. A *random variable* is actually a function — it assigns numerical values to the outcomes of a random process. For example, you might define a random variable as “the return to Apple stock over the coming trading day” or “the number of bonds in a portfolio that default over the coming year.”

The two basic types of probability distributions you may encounter in statistics are discrete distributions and continuous distributions:

- A
*discrete distribution*is one for which every outcome has a positive probability. - A
*continuous distribution*assigns probabilities to ranges of values.

For example, the distribution of bonds that default over the coming year would be discrete, because every bond has a distinct probability ...

Start Free Trial

No credit card required