Ralph Vince - Portfolio Mathematics

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Probability Distributions 81

desired accuracy of the result will determine whether the approximation
is successful or not. Generally, though, a population to sample size of 100
to 1 is usually sufficient to permit approximating the Hypergeometric with
the Binomial.

The Poisson Distribution


ThePoisson Distributionis another important discrete distribution. This
distribution is used to model arrival distributions and other seemingly ran-
dom events that occur repeatedly yet haphazardly. These events can occur
at points in time or at points along a wire or line (one dimension), along
a plane (two dimensions), or in any N-dimensional construct. Figure 2.24
shows the arrival of events (the Xs) along a line, or in time.
The Poisson Distribution was originally developed to model incoming
telephone calls to a switchboard. Other typical situations that can be mod-
eled by the Poisson are the breakdown of a piece of equipment, the com-
pletion of a repair job by a steadily working repairman, a typing error, the
growth of a colony of bacteria on a Petri plate, a defect in a long ribbon or
chain, and so on.

FIGURE 2.24 Sequence of haphazard events in time
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