Chapter 4 – Continuous Random Variables
4.1 Transition from Discrete to Continuous
While discrete variables deal with "countable" outcomes, Continuous Random Variables
represent data that can take any value within an interval (e.g., time, weight, financial returns).
Because there are infinitely many points in any interval, the probability of a continuous RV being
exactly one value is zero: $P(X = x) = 0$.
4.2 The Probability Density Function (PDF)
The PDF, denoted as $f(x)$, represents the "density" of probability. It must satisfy:
1. $f(x) \geq 0$ for all $x$.
2. The total area under the curve is 1: $\int_{-\infty}^{\infty} f(x) dx = 1$.
3. The probability that $X$ falls between $a$ and $b$ is the area under the curve:
$$P(a \leq X \leq b) = \int_{a}^{b} f(x) dx$$
4.3 Cumulative Distribution Function (CDF)
The CDF $F(x)$ for a continuous variable is the integral of the PDF:
$$F(x) = P(X \leq x) = \int_{-\infty}^{x} f(u) du$$
By the Fundamental Theorem of Calculus, the PDF is the derivative of the CDF: $f(x) =
\frac{d}{dx}F(x)$.
4.4 Measures of Central Tendency and Variance
● Expected Value: $E[X] = \int_{-\infty}^{\infty} x \cdot f(x) dx$
● Variance: $Var(X) = E[X^2] - (E[X])^2$, where $E[X^2] = \int_{-\infty}^{\infty} x^2 \cdot
f(x) dx$.
4.5 The Normal Distribution $N(\mu, \sigma^2)$
The most important distribution in statistics. It is symmetric and bell-shaped.
● The Standard Normal ($Z$): Any normal variable $X$ can be "standardized" using the
formula:
$$Z = \frac{X - \mu}{\sigma}$$
● The Empirical Rule: Roughly 68% of data falls within $1\sigma$, 95% within $2\sigma$,
and 99.7% within $3\sigma$.
Chapter 4 – Continuous Random Variables
4.1 Transition from Discrete to Continuous
While discrete variables deal with "countable" outcomes, Continuous Random Variables
represent data that can take any value within an interval (e.g., time, weight, financial returns).
Because there are infinitely many points in any interval, the probability of a continuous RV being
exactly one value is zero: $P(X = x) = 0$.
4.2 The Probability Density Function (PDF)
The PDF, denoted as $f(x)$, represents the "density" of probability. It must satisfy:
1. $f(x) \geq 0$ for all $x$.
2. The total area under the curve is 1: $\int_{-\infty}^{\infty} f(x) dx = 1$.
3. The probability that $X$ falls between $a$ and $b$ is the area under the curve:
$$P(a \leq X \leq b) = \int_{a}^{b} f(x) dx$$
4.3 Cumulative Distribution Function (CDF)
The CDF $F(x)$ for a continuous variable is the integral of the PDF:
$$F(x) = P(X \leq x) = \int_{-\infty}^{x} f(u) du$$
By the Fundamental Theorem of Calculus, the PDF is the derivative of the CDF: $f(x) =
\frac{d}{dx}F(x)$.
4.4 Measures of Central Tendency and Variance
● Expected Value: $E[X] = \int_{-\infty}^{\infty} x \cdot f(x) dx$
● Variance: $Var(X) = E[X^2] - (E[X])^2$, where $E[X^2] = \int_{-\infty}^{\infty} x^2 \cdot
f(x) dx$.
4.5 The Normal Distribution $N(\mu, \sigma^2)$
The most important distribution in statistics. It is symmetric and bell-shaped.
● The Standard Normal ($Z$): Any normal variable $X$ can be "standardized" using the
formula:
$$Z = \frac{X - \mu}{\sigma}$$
● The Empirical Rule: Roughly 68% of data falls within $1\sigma$, 95% within $2\sigma$,
and 99.7% within $3\sigma$.