Conditional Expectation of a normal random variable.

conditional-expectationexpected valuenormal distributionprobability

I have been asked to derive the expression for $E[X\mid X>a]$ where $X$ is a normal random variable with mean $\mu$ and variance $\sigma^2$ and $a$ is some constant belonging to $R$. It is my understanding that I need to integrate the product of $X$ and pdf of normal from $a<x<\infty$. But I am unable to figure out this integral. Can anyone help with that?
If possible, kindly also guide how we can solve it using the MGF of normal random variable.

Best Answer

The conditional distribution $f(x|x>a)$ is given by

$$f_{X|X>a}(x)=\frac{1}{1-F_X(a)}f_X(x)\mathbb{1}_{(a;\infty)}(x)$$

The integral involved to calculate the expectation can be easy solved as it is in the form

$$\int x e^{-\frac{x^2}{2}}dx$$

and as you note, $x$ is something like the exponent derivative...


Example:

$X\sim N(1;1)$

Calculate $\mathbb{E}(X|X>1)$

$$\mathbb{E}(X|X>1)=\frac{1}{1-F(1)}\int_1^{\infty}\frac{1}{\sqrt{2\pi}}x e^{-\frac{(x-1)^2}{2}}dx=$$

Set $x-1=y$

$$2\Bigg[\int_0^{\infty}\frac{1}{\sqrt{2\pi}}ye^{-\frac{y^2}{2}}dy+\underbrace{\int_0^{\infty}\frac{1}{\sqrt{2\pi}}e^{-\frac{y^2}{2}}dy}_{=\frac{1}{2}}\Bigg]$$

$$=2\Bigg\{-\frac{1}{\sqrt{2\pi}}\Bigg[e^{-\frac{y^2}{2}}\Bigg]_0^{\infty}+\frac{1}{2}\Bigg\}=\frac{2}{\sqrt{2\pi}}+1\approx1.797885$$


General example

$X\sim N(\mu;\sigma^2)$; Calculate $\mathbb{E}(X|X>a)$

$$\mathbb{E}(X|X>a)=\frac{1}{1-\Phi\Big(\frac{a-\mu}{\sigma}\Big)}\int_a^{\infty}\frac{1}{\sigma\sqrt{2\pi}}x e^{-\frac{1}{2}\Big(\frac{x-\mu}{\sigma}\Big)^2}$$

Set $\frac{x-\mu}{\sigma}=y$

$$\frac{1}{1-\Phi\Big(\frac{a-\mu}{\sigma}\Big)}\int_{\frac{a-\mu}{\sigma}}^{\infty}\frac{1}{\sqrt{2\pi}}(\sigma y+\mu) e^{-\frac{1}{2}y^2}dy$$

$$\frac{1}{1-\Phi\Big(\frac{a-\mu}{\sigma}\Big)}\Bigg\{\int_{\frac{a-\mu}{\sigma}}^{\infty}\frac{\sigma y}{\sqrt{2\pi}} e^{-\frac{1}{2}y^2}dy+\mu\int_{\frac{a-\mu}{\sigma}}^{\infty}\frac{1}{\sqrt{2\pi}}e^{-\frac{1}{2}y^2}dy\Bigg\}$$

$$\frac{1}{1-\Phi\Big(\frac{a-\mu}{\sigma}\Big)}\Bigg\{\frac{\sigma}{\sqrt{2\pi}}\Big[ -e^{-\frac{1}{2}y^2}\Big]_{\frac{a-\mu}{\sigma}}^{\infty}+\mu\Big[1-\Phi\Big(\frac{a-\mu}{\sigma}\Big] \Bigg\}$$

$$ \bbox[5px,border:2px solid red] { \mathbb{E}(X|X>a)=\frac{1}{1-\Phi\Big(\frac{a-\mu}{\sigma}\Big)}\Bigg\{\frac{\sigma}{\sqrt{2\pi}}e^{-\frac{1}{2}\Big(\frac{a-\mu}{\sigma}\Big)^2}+\mu\Big[1-\Phi\Big(\frac{a-\mu}{\sigma}\Big] \Bigg\} \ } $$

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