A week ago, I asked a question concerning the Taylor expansion of an arbitrary distribution function. As noted by a member of the forum, the question was vague and perhaps incorrect. I had asked this question in my quest to understand a particular derivation in a book titled "Sign-based methods in linear statistical models" by Boldin et al (1997), as to me it appeared to be a Taylor series. This is the excerpt from the book (with some preliminary assumptions):

Consider a one parameter model

\begin{equation} x_i=c_i\theta+\varepsilon_i,\quad i=1,\cdots,n, \end{equation}

with parameter $\theta\in \mathbb{R}$. Further assume the random errors are independent and identically distributed. Their common distribution function is \begin{equation} F(u)=P\{\varepsilon_i<u\} \end{equation} with the following conditions:

  1. $F(0)=1/2$
  2. $F(x)$ has a continuous density $f(x)$ in a neighbourhood of zero, and $f(0)>0$.
  3. $f(x)$ is absolutely continuous in a neighbourhood of zero and $f'(0)=0$
  4. $F(x)$ satisfies the Lipschitz condition at zero.

Consider the vector of signs \begin{equation} S(X)=(\text{sign }x_1,\cdots,\text{sign }x_n)' \end{equation} The possible values of random vector $S(X)$ are vectors consisting of $+1$ and $-1$. Let \begin{equation} S=(s_1,\cdots,s_n)' \end{equation} be an arbitrary vector of this form. Then the likelihood $P\{S(X)=s\mid \theta \}$ is given by the formula

\begin{eqnarray} P\{S(X)=s\mid \theta \}&=&\prod\limits_{t=1}^{n}(P\{x_i>0\})^{(1+s_i)/2}(P\{x_i<0\})^{(1-s_i)/2}\\ &=&2^{-n}\prod\limits_{t=1}^n[1+2f(0)c_is_i\theta+o(\theta)]\\ &=&2^{-n}\left[1+2f(0)\left(\sum\limits_{i=1}^{n}c_is_i\right)\theta+o(\theta)\right] \end{eqnarray}

My question is as follows: I do not exactly understand how line 2 of the likelihood function is derived. I initially thought it is a Taylor expansion, but as it was noted it could be that I am completely wrong about this. Thanks in advance!


1 Answer 1


You need to relate the probabilities to $F,$ so begin with

$$\Pr(x_i \gt 0) = \Pr(c_i\theta + \varepsilon\gt 0) = \Pr(\varepsilon\gt -c_i\theta) = F(-c_i\theta),$$

immediately giving

$$\Pr(x_i \lt 0) = 1 - \Pr(x_i \gt 0) - \Pr(x_i=0) = 1 - F(-c_i\theta)$$

because $F$ is continuous.

The key is the "$o(\theta)$" term, indicating the evaluation is to be made for arbitrarily small $|\theta|.$ This implies all the $-c_i\theta$ are small, too, which means $F$ will be evaluated in a neighborhood of $0.$ The assumptions are made so that you can approximate $F$ by its derivative at $0.$ That is, for sufficiently small $|x|,$ use

$$F(x) = F(0) + F^\prime(0)x + o(x) = \frac{1}{2} + f(0)x + o(x).$$

Using this approximation with $x=-c_i\theta$ lets us approximate each term in the product as

$$\begin{aligned} &\Pr(x_i\gt 0)^{(1+s_i)/2}\, \Pr(x_i\lt 0)^{(1-s_i)/2} \\ &= \left(\frac{1}{2} - f(0)c_i\theta + o(c_i\theta)\right)^{(1+s_i)/2}\, \left(\frac{1}{2} + f(0)c_i\theta + o(c_i\theta)\right)^{(1-s_i)/2} . \end{aligned}$$

We may treat each of these factors in the same way by applying the Binomial Theorem (equivalently, the MacLaurin series for a binomial power), which implies

$$(1 + x)^p = 1 + px + o(x).$$

Whence, plugging in appropriate values for $x$ and $p$ and factoring out $1/2,$ the factors can be expressed

$$\left(\frac{1}{2} \mp f(0)c_i\theta + o(c_i\theta)\right)^{(1\pm s_i)/2} = 2^{-(1\pm s_i)/2}\left(1 \mp \frac{1\pm s_i}{2}\,2f(0)(c_i\theta) + o(\theta)\right).$$

Finally, the product of these terms can be taken using the standard rules of algebra, noting that $o(c_i\theta) = o(\theta),$ $\theta o(\theta) = o(\theta),$ and $o(\theta)^2 = o(\theta)$ (all of which are easy implications of the definition of $o$). After that simplification, the terms will have been reduced to

$$2^{-1} \left(1 + 2 f(0) s_i c_i \theta + o(\theta)\right).$$

Factoring out the $n$ copies of $2^{-1}$ from the product of all these terms produces the second line of the derivation.

  • $\begingroup$ Thank you so much! You are a saint! However, my confusion still remains regarding a point you had made last week! If you recall, I made a remark about Taylor series for an arbitrary distribution function, with which you found an issue. However, as I had suspected and as you have pointed out yourself, it is indeed a MacLaurin series. Could you please kindly also elaborate on my mistake in the technical phrasing of that question, which led to confusion. I am mainly asking this for the sake of clarity and a deeper understanding. Thank you again! $\endgroup$
    – Carl
    Nov 12, 2020 at 17:53
  • 1
    $\begingroup$ If you're referring to stats.stackexchange.com/questions/494800/…, it's too vague to determine what you are asking about. In light of the present question one can guess what you're getting at but it still needs more details. $\endgroup$
    – whuber
    Nov 12, 2020 at 17:56
  • 1
    $\begingroup$ Upon second inspection, you are correct. I seem to struggle to convey certain ideas on the forum. Hopefully this will improve in the future. Once again, I am grateful for your response and making this clear for me. $\endgroup$
    – Carl
    Nov 12, 2020 at 17:58

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