8. Dependence, Correlation, and Conditional Expectation

  1. Paolo Brandimarte

Published Online: 24 MAY 2011

DOI: 10.1002/9781118023525.ch8

Quantitative Methods: An Introduction for Business Management

Quantitative Methods: An Introduction for Business Management

How to Cite

Brandimarte, P. (2011) Dependence, Correlation, and Conditional Expectation, in Quantitative Methods: An Introduction for Business Management, John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118023525.ch8

Publication History

  1. Published Online: 24 MAY 2011
  2. Published Print: 4 APR 2011

ISBN Information

Print ISBN: 9780470496343

Online ISBN: 9781118023525

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Keywords:

  • conditional expectation;
  • correlation;
  • covariance;
  • dependence of random variables;
  • exponential distribution;
  • joint distribution;
  • marginal distribution

Summary

This chapter first introduces the formal concepts of joint and marginal distributions. Then, it summarizes properties of independent random variables. The chapter also characterizes the interdependence between two random variables in terms of covariance and correlation. Further, the chapter illustrates the role of these concepts in risk management, and the multivariate normal distribution. Finally, it takes advantage of the possible links between random variables to compute expectations by conditioning. Indeed, conditional expectation is an essential concept in many applications.

Controlled Vocabulary Terms

Conditional mean; correlation; covariance; exponential distribution; marginal distribution