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Inverse Gaussian random variables with application to price indices

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  • Saralees Nadarajah
  • Samuel Kotz

Abstract

Inverse Gaussian distributions have proved to fit economic indices remarkably well in empirical investigations (Aase, 2000). In this note, the exact distribution of the ratio W = X/(X + Y) is derived when X and Y are independent inverse Gaussian random variables. This distribution arises when one is interested in comparing the performances of two economic entities. Several computer programs are given for computing the associated pdf, cdf, percentile points and the random numbers. A detailed application is illustrated for consumer price indices from the six major economics.

Suggested Citation

  • Saralees Nadarajah & Samuel Kotz, 2007. "Inverse Gaussian random variables with application to price indices," Applied Economics Letters, Taylor & Francis Journals, vol. 14(9), pages 673-677.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:9:p:673-677
    DOI: 10.1080/13504850500447398
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    References listed on IDEAS

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    1. Aase, Knut K., 2000. "An equilibrium asset pricing model based on Lévy processes: relations to stochastic volatility, and the survival hypothesis," Insurance: Mathematics and Economics, Elsevier, vol. 27(3), pages 345-363, December.
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    Cited by:

    1. Sinha, Pankaj & Jayaraman, Prabha, 2009. "Bayes reliability measures of Lognormal and inverse Gaussian distributions under ML-II ε-contaminated class of prior distributions," MPRA Paper 16528, University Library of Munich, Germany.
    2. Sinha, Pankaj & Jayaraman, Prabha, 2009. "Robustness of Bayesian results for Inverse Gaussian distribution under ML-II epsilon-contaminated and Edgeworth Series class of prior distributions," MPRA Paper 15396, University Library of Munich, Germany.

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