Business Statistics For Dummies
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As with the binomial and geometric distributions, you can use simple formulas to compute the moments — expected value, variance, and standard deviation — of the Poisson distribution.

How to calculate the expected value of the Poisson distribution

You can find the expected value of the Poisson distribution by using the formula,


For example, say that on average three new companies are listed in the New York Stock Exchange (NYSE) each year. The number of new companies listed during a given year is independent of all other years. The number of new listings per year, therefore, follows the Poisson distribution, with a value of


As a result, the expected number of new listings next year is


How to compute the variance and standard deviation of the Poisson distribution

You can compute the variance and the Poisson distribution as


So, in the NYSE listing example, the variance equals 3 and the standard deviation equals


About This Article

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About the book author:

Alan Anderson, PhD is a teacher of finance, economics, statistics, and math at Fordham and Fairfield universities as well as at Manhattanville and Purchase colleges. Outside of the academic environment he has many years of experience working as an economist, risk manager, and fixed income analyst. Alan received his PhD in economics from Fordham University, and an M.S. in financial engineering from Polytechnic University.

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