A Statistical Methods

This Appendix provides details to some of statistical methods used in the book.

A.1 Kernel Density Estimation

In the entropy computation (see Section 5) the empirical probability distribution must be estimated. Histogram-based methods and kernel density estimations are the two main methods for that. Histogram-based is the simplest and most used nonparametric density estimator. Nonetheless, it yields density estimates that have discontinuities and vary significantly depending on the bin size choice.

Also known as the Parzen-Rosenblatt window method, the kernel density estimation (KDE) approach approximates the density function at point \(x\) using neighboring observations. However, instead of building up the estimate according to the bin edges as in histograms, the KDE method uses each point of estimation \(x\) as the center of a bin of width \(2h\) and weight it according to a kernel function. Thereby, the kernel estimate of the probability density function \(f(x)\) is defined as \[\begin{equation} \hat{f} = \frac{1}{nh}\sum_{x' \in X}{K\left(\frac{x - x'}{h}\right)}. \tag{A.1} \end{equation}\] A usual choice for the kernel \(K\), which we use here, is the (Gaussian) radial basis function: \[\begin{equation} K(x) = \frac{1}{\sqrt{2\pi}}\exp^{-\frac{1}{2}x^2}. \end{equation}\] The problem of selecting the bandwidth \(h\) in Eq. (A.1) is crucial in the density estimation. A large \(h\) will oversmooth the estimated density and mask the structure of the data. On the other hand, a small bandwidth will reduce the bias of the density estimate at the expense of a larger variance in the estimates. If we assume that the true distribution is Gaussian and we use a Gaussian kernel, the optimal value of \(h\) that minimizes the mean integrated squared error (MISE) is \[\begin{equation*} h^* = 1.06\sigma N^{-1/5}, \end{equation*}\]

where \(N\) is the total number of points and \(\sigma\) can be estimated as the sample standard deviation. This bandwidth estimation is often called the Gaussian approximation or Silverman’s rule of thumb for kernel density estimation (Silverman and Green 1986). This is the most commonly-used method and it is here employed. Other common methods are given by (Sheather and Jones 1991) and (Scott 1992).

References

Silverman, B. W., and P. J. Green. 1986. Density Estimation for Statistics and Data Analysis. London: Chapman; Hall.

Sheather, S. J., and M. C. Jones. 1991. “A Reliable Data-Based Bandwidth Selection Method for Kernel Density Estimation.” Journal of the Royal Statistical Society. Series B (Methodological) 53 (3). Blackwell Publishing for the Royal Statistical Society: pp. 683–90.

Scott, D.W. 1992. Multivariate Density Estimation: Theory, Practice, and Visualization. A Wiley-Interscience Publication. Wiley.