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Let $\epsilon_i \sim \text{Exp}(\lambda)$, $\lambda > 0$, and iid for all $i = 1,2, \dots$ Suppose for we have the linear model $$ Y_i = \beta X_i + \epsilon_i,$$ where $X_i > 0$ for all $i = 1, 2, \dots$

I would like to find the distribution of $\hat{\beta} - \beta$ for this model. The cdf and pdf of $Y_i$ is

$$F(y_i) = 1 - e^{\lambda(\beta x_i - y_i)}\mathbb{1}\{y_i \geq \beta x_i\}~~~~~~~\text{and}~~~~~~~f(y_i) = \frac{d}{dy_i}F(y_i) = \lambda e^{\lambda(\beta x_i - y_i)}\mathbb{1}\{y_i \geq \beta x_i\}.$$

Now, the likelihood is

$$L(Y_i; \beta, \lambda) = \prod_{i=1}^n \lambda e^{\lambda(\beta x_i - y_i)}\mathbb{1}\{y_i \geq \beta x_i\}.$$

We want $\beta x_i$ as large as possible without making the indicator 0. Then

$$\beta x_i \leq \min\{y_i\} ~~\Rightarrow~~ \hat{\beta} = \frac{\min\{y_i\}}{x_i}.$$

But I'm not sure how I would go about finding the distribution of

$$ \hat{\beta} - \beta = \frac{\min\{y_i\}}{x_i} - \beta.$$

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  • $\begingroup$ Find its CDF... $\endgroup$ – StubbornAtom Mar 10 '20 at 6:59
  • $\begingroup$ @StubbornAtom I'm unsure how. The min gives me the idea: $P((X_i)^{-1}\min\{Y_1, \dots, Y_n\} - \beta > y) = P(\min\{Y_1, \dots, Y_n\} > X_i(y - \beta)) = \dots = exp\{-\lambda(y - \beta)\sum X_i\}?$ $\endgroup$ – xuzhang23 Mar 10 '20 at 7:16
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The problem here is that you have not correctly identified the MLE. Your likelihood function can be written as:

$$\begin{equation} \begin{aligned} L_{\mathbf{y},\mathbf{x}}(\beta, \lambda) &= \prod_{i=1}^n \lambda \exp( - \lambda(y_i - \beta x_i)) \cdot \mathbb{I}(y_i \geqslant \beta x_i) \\[6pt] &= \prod_{i=1}^n \lambda \exp( - \lambda(y_i - \beta x_i)) \cdot \mathbb{I} \Big( \beta \leqslant \frac{y_i}{x_i} \Big) \\[6pt] &= \lambda^n \exp \Big( - \lambda \sum_{i=1}^n (y_i - \beta x_i) \Big) \cdot \mathbb{I} \Big( \beta \leqslant \min \Big\{ \frac{y_i}{x_i} \Big\} \Big) \\[6pt] &= \lambda^n \exp \Big( - \lambda n (\bar{y}_n - \beta \bar{x}_n) \Big) \cdot \mathbb{I} \Big( \beta \leqslant \min \Big\{ \frac{y_i}{x_i} \Big\} \Big). \\[6pt] \end{aligned} \end{equation}$$

The corresponding log-likelihood function is:

$$\begin{equation} \begin{aligned} \ell_{\mathbf{y},\mathbf{x}}(\beta, \lambda) &= \begin{cases} n \ln (\lambda) - \lambda n (\bar{y}_n - \beta \bar{x}_n) & & \text{for } \beta \leqslant \min \{ y_i/x_i \}, \\[6pt] -\infty & & \text{for } \beta > \min \{ y_i/x_i \}. \\[6pt] \end{cases} \end{aligned} \end{equation}$$

Since this function is monotonically increasing in $\beta$ over the range of the first part, it is maximised at the boundary point $\hat{\beta} = \min \{ y_i/x_i \}$ (which is different to the solution you have given). Now, to obtain the distribution of this statistic, we can use the fact that:

$$\frac{Y_i}{x_i} - \beta = \frac{\epsilon_i}{x_i} \sim \text{Exp}(\lambda x_i).$$

We therefore have the CDF:

$$\begin{equation} \begin{aligned} F_{\hat{\beta}-\beta}(t) \equiv \mathbb{P}(\hat{\beta}-\beta \leqslant t) &= \mathbb{P} \Big( \min \Big\{ \frac{Y_i}{x_i} - \beta \Big\} \leqslant t \Big) \\[6pt] &= 1 - \mathbb{P} \Big( \min \Big\{ \frac{Y_i}{x_i} - \beta \Big\} > t \Big) \\[6pt] &= 1 - \prod_{i=1}^n \mathbb{P} \Big( \frac{Y_i}{x_i} - \beta > t \Big) \\[6pt] &= 1 - \prod_{i=1}^n \exp ( - \lambda t x_i ) \\[6pt] &= 1 - \exp \Big( - t \cdot \lambda n \bar{x}_n \Big). \\[6pt] \end{aligned} \end{equation}$$

This means that we have the distribution:

$$\hat{\beta}-\beta \sim \text{Exp}( \lambda n \bar{x}_n ).$$

(Note that one consequence of this is that we have the bias $\mathbb{E}(\hat{\beta}-\beta) = 1/\lambda n \bar{x}_n$, so the "bias corrected" version of the estimator is $\hat{\beta}_* = \min \{ y_i/x_i \} + 1/\lambda n \bar{x}_n$.)

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