Stein's lemma

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Short description: Theorem of probability theory

Stein's lemma, named in honor of Charles Stein, is a theorem of probability theory that is of interest primarily because of its applications to statistical inference — in particular, to James–Stein estimation and empirical Bayes methods — and its applications to portfolio choice theory.[1] The theorem gives a formula for the covariance of one random variable with the value of a function of another, when the two random variables are jointly normally distributed.

Note that the name "Stein's lemma" is also commonly used[2] to refer to a different result in the area of statistical hypothesis testing, which connects the error exponents in hypothesis testing with the Kullback–Leibler divergence. This result is also known as the Chernoff–Stein lemma[3] and is not related to the lemma discussed in this article.

Statement of the lemma

Suppose X is a normally distributed random variable with expectation μ and variance σ2. Further suppose g is a differentiable function for which the two expectations E(g(X) (X − μ)) and E(g ′(X)) both exist. (The existence of the expectation of any random variable is equivalent to the finiteness of the expectation of its absolute value.) Then

E(g(X)(X−μ))=σ2E(g′(X)).

In general, suppose X and Y are jointly normally distributed. Then

Cov⁡(g(X),Y)=Cov⁡(X,Y)E(g′(X)).

For a general multivariate Gaussian random vector (X1,...,Xn)∼N(μ,Σ) it follows that

E(g(X)(X−μ))=Σ⋅E(∇g(X)).

Proof

The univariate probability density function for the univariate normal distribution with expectation 0 and variance 1 is

φ(x)=12πe−x2/2

Since ∫xexp⁡(−x2/2)dx=−exp⁡(−x2/2) we get from integration by parts:

E[g(X)X]=12π∫g(x)xexp⁡(−x2/2)dx=12π∫g′(x)exp⁡(−x2/2)dx=E[g′(X)].

The case of general variance σ2 follows by substitution.

More general statement

Isserlis' theorem is equivalently stated asE⁡(X1f(X1,…,Xn))=∑i=1nCov⁡(X1Xi)E⁡(∂Xif(X1,…,Xn)).where (X1,…Xn) is a zero-mean multivariate normal random vector.

Suppose X is in an exponential family, that is, X has the density

fη(x)=exp⁡(η′T(x)−Ψ(η))h(x).

Suppose this density has support (a,b) where a,b could be −∞,∞ and as x→a or b, exp⁡(η′T(x))h(x)g(x)→0 where g is any differentiable function such that E|g′(X)|<∞ or exp⁡(η′T(x))h(x)→0 if a,b finite. Then

E[(h′(X)h(X)+∑ηiTi′(X))⋅g(X)]=−E[g′(X)].

The derivation is same as the special case, namely, integration by parts.

If we only know X has support ℝ, then it could be the case that E|g(X)|<∞ and E|g′(X)|<∞ but limx→∞fη(x)g(x)=0. To see this, simply put g(x)=1 and fη(x) with infinitely spikes towards infinity but still integrable. One such example could be adapted from f(x)={1x∈[n,n+2−n)0otherwise so that f is smooth.

Extensions to elliptically-contoured distributions also exist.[4][5][6]

See also

References

  1. ↑ Ingersoll, J., Theory of Financial Decision Making, Rowman and Littlefield, 1987: 13-14.
  2. ↑ Csiszár, Imre; Körner, János (2011). Information Theory: Coding Theorems for Discrete Memoryless Systems. Cambridge University Press. p. 14. ISBN 9781139499989. https://books.google.com/books?id=2gsLkQlb8JAC&pg=PA14. 
  3. ↑ Thomas M. Cover, Joy A. Thomas (2006). Elements of Information Theory. John Wiley & Sons, New York. ISBN 9781118585771. https://books.google.com/books?id=VWq5GG6ycxMC. 
  4. ↑ Cellier, Dominique; Fourdrinier, Dominique; Robert, Christian (1989). "Robust shrinkage estimators of the location parameter for elliptically symmetric distributions". Journal of Multivariate Analysis 29 (1): 39–52. doi:10.1016/0047-259X(89)90075-4. 
  5. ↑ Hamada, Mahmoud; Valdez, Emiliano A. (2008). "CAPM and option pricing with elliptically contoured distributions". The Journal of Risk & Insurance 75 (2): 387–409. doi:10.1111/j.1539-6975.2008.00265.x. 
  6. ↑ Landsman, Zinoviy (2008). "Stein's Lemma for elliptical random vectors". Journal of Multivariate Analysis 99 (5): 912––927. doi:10.1016/j.jmva.2007.05.006.