Solved – Calculating the variance of a truncated normally distributed RV given the prob. of a range

distributionsnormal distributionrangevariance

Let's say that I have a Truncated Normal Distribution (from a to b) with mean $m$ (where $m$ is the mean of the truncated Normal) and not known std. I know the probability for the range $m-d$ and $m+d$ (this range is within the truncation points, of course). How do I proceed in calculating the variance of this RV?

Thank you.

Best Answer

Let $\phi(y) = \frac{1}{\sqrt{2\pi}}e^{\frac{-y^2}{2}}$ And $\Phi(y) = P(Y \leq y)$

If $X \sim N(\mu, \sigma^2)$, it is possible to write it as $X = \mu + \sigma Y$ where $Y \sim N(0,1)$

Then, $f_X(x) = \frac{1}{\sigma} f(\frac{x-\mu}{\sigma})$

Let $Z$ represent the truncated normal bounded between $[a,b]$. Then $f_Z(z)$ is given by:

$$ f_Z(z | a,b) = \frac{\frac{1}{\sigma} \phi(\frac{z-\mu}{\sigma})}{\Phi(\frac{b-\mu}{\sigma})-\Phi(\frac{a-\mu}{\sigma})} $$

It is easy to since the denominator represents the probability of a normal r.v. being in the range $[a,b]$

Now consider the moment generating function(MGF): $M(t)=E[e^{tZ}]$

\begin{align*} E[e^{tZ}] &= \frac{1}{\sigma} \frac{1}{\Phi(\frac{b-\mu}{\sigma})-\Phi(\frac{a-\mu}{\sigma})} \int_a^b e^{tz}\phi(\frac{z-\mu}{\sigma})dz\\ \int_a^b e^{tz}\phi(\frac{z-\mu}{\sigma})dz &= \int_{a}^b \frac{1}{\sqrt{2\pi}}e^{tz}e^{\frac{-(z-\mu)^2}{2\sigma^2}} \\ &= \frac{1}{\sqrt{2\pi}} \int_a^b e^{\frac{\sigma^2tz-(z-\mu)^2}{2\sigma^2}}\\ &=\frac{1}{\sqrt{2\pi}} \int_a^b e^{\frac{-\mu^2+(\sigma^2t +\mu)^2}{2\sigma^2}} e^{\frac{-(z-(\sigma^2t +\mu))^2}{2\sigma^2}}\\ &= \frac{1}{\sqrt{2\pi}} e^{\mu t + \frac{\sigma^2t^2}{2}} \big({\Phi(\frac{z-\mu'}{\sigma})-\Phi(\frac{a-\mu'}{\sigma})} \big) \end{align*}

where $\mu' = \mu+\sigma^2 t$

Use this relation to find $M(t)$. Then:

$var(Z) = M''(t)|_{t=0} - (M'(t)|_{t=0})^2$

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