What is a ‘Random Variable’
A random variable is a variable whose value is unknown or a function that assigns values to each of an experiment’s outcomes. Random variables are often designated by letters and can be classified as discrete, which are variables that have specific values, or continuous, which are variables that can have any values within a continuous range.
Explaining ‘Random Variable’
Consider an experiment where a coin is tossed three times. If X represents the number of times that the coin comes up heads, then X is a discrete random variable that can only have the values 0,1,2,3 (from no heads in three successive coin tosses, to all heads). No other value is possible for X.
An example of a continuous random variable would be an experiment that involves measuring the amount of rainfall in a city over a year, or the average height of a random group of 25 people.
Further Reading
- The covariance sign of transformed random variables with applications to economics and finance – academic.oup.com [PDF]
- The application of continuous-time random walks in finance and economics – www.sciencedirect.com [PDF]
- Coherent and random sequences in financial fluctuations – www.sciencedirect.com [PDF]
- Power laws in economics and finance – www.annualreviews.org [PDF]
- On simulating truncated skewed Cauchy random variables – www.tandfonline.com [PDF]
- Herd behavior and aggregate fluctuations in financial markets – arxiv.org [PDF]
- Discounting certain random sums – www.tandfonline.com [PDF]
- A multi-point distributed random variable accelerator for Monte Carlo simulation in finance – ieeexplore.ieee.org [PDF]
