Relationship between poisson & exponential distribution

[[email protected]]

Hi David,
Regarding poisson and exponential relationship I noticed a difference between the "2011.T2.c.-Quantitative" video, and the excel file "Rachev-distributions.xls". In the excel file the probability that a loss occurs within the next hour is 22,1%, while in the video 39,3% (for lambda=6). Can you clarify?
Thanks

 

[David Harper CFA FRM]

Hi josi,

Yes, the video contains an error (which a customer spotted), so I corrected the PowerPoint @ http://www.bionicturtle.com/how-to/video/2011-2.c-quantitative-analysis/ (but cannot easily change the video of course!)
... the formula in the video is correct but the answer should be 22.1% (to match the Excel)
In this case, lambda = 6 = number of events/day, such that exponential CDF is:

P[next event occurs within the next one hour | 0.25 events per hour] = 1 - exp(- 0.25 events / hour * 1 hour) given that, if 6 events per day, 1/4 event per hour is the hazard rate.

Thank you, sorry the video mistake gave rise to a confusion, David

 

[[email protected]]

Great. Thanks much David.