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Poisson Distribution
Related terms:

Probability Distribution, Confidence Interval, Central Limit Theorem, Exponential

Distribution, Moment Generating Function, Sample Mean

Advanced Math and Statistics

Robert Kissell, Jim Poserina, in Optimal Sports Math, Statistics, and Fantasy, 2017

Poisson Distribution
The Poisson distribution is a discrete distribution that measures the probability of a
given number of events happening in a specified time period. In finance, the
Poisson distribution could be used to model the arrival of new buy or sell orders
entered into the market or the expected arrival of orders at specified trading venues
or dark pools. In these cases, the Poisson distribution is used to provide
expectations surrounding confidence bounds around the expected order arrival
rates. Poisson distributions are very useful for smart order routers and algorithmic
trading.

Poisson Distribution Statistics1

Notation

Parameter

Distribution

Pdf

Cdf

Mean

Variance

Skewness

Kurtosis

Poisson Distribution Graph

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Discrete Probability Distributions

S. Sinharay, in International Encyclopedia of Education (Third Edition), 2010

Poisson Distribution
The Poisson distribution describes the probability to find exactly x events in a given
length of time if the events occur independently at a constant rate. In addition, the
Poisson distribution can be obtained as an approximation of a binomial
distribution when the number of trials n of the latter distribution is large, success
probability p is small, and np is a finite number.
The PMF of the Poisson distribution is given by
, where λ is a positive number. Both the mean
and variance of the Poisson distribution are equal to λ.
The maximum likelihood estimate of λ from a sample from the Poisson
distribution is the sample mean.
If λ is large, the probability that a Poisson random variable X takes the value x can
be obtained by approximating X by a normal variable Y with mean and variance λ
and computing the probability that Y lies between x −0.5 and x +0.5.
It is possible to generate a Poisson random variable by generating a random
number following the U(0, 1) distribution and then using the CDF-inversion
method.
The Poisson distribution has been applied in education, for example, by Novick and
Jackson (1974).

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Essential statistics for data analysis

Syed Naeem Ahmed, in Physics and Engineering of Radiation Detection (Second
Edition), 2015

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D.2 Poisson distribution

Poisson distribution represents the distribution of Poisson processes and is in fact
a limiting case of the binomial distribution. By Poisson processes, we mean
processes that are discrete, independent, and mutually exclusive.
The p.d.f. of a Poisson distribution is defined as
(9.3.31)

where x=0, 1, … represents the discrete random variable, such as ADC counts
recorded by a detection system, and μ>0 is the mean. Figure 9.3.3 depicts this
distribution for different values of μ. It is apparent that the width of the distribution
increases with μ, which indicates that the uncertainty in measurement increases
with an increase in the value of x.

Figure 9.3.3. Poisson probability density for different values of μ. The width of the
distribution, which is a reflection of the uncertainty in measurements, increases
with increase in μ.

Let us now apply the maximum likelihood method to determine the best estimate
of the mean of a set of n measurements, assuming that the underlying process is
Poisson in nature. The best way to do this is to use the maximum likelihood
method we outlined earlier and applied in the previous section when discussing
the binomial distribution. Since Poisson distribution is a discrete probability
distribution, its likelihood function for a set of n measurements can be written as
(9.3.32)

The log-likelihood function of L(μ) is

(9.3.33)

Following the maximum likelihood method (∂l/∂μ=0), we get

(9.3.34)

This shows that the simple mean is the most probable value of a Poisson
distributed variable. To determine the error in μ, we first take the second derivative
of the log-likelihood function and then substitute it in Eq. (9.3.22):
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(9.3.35)

This is one of the most useful results of the Poisson distribution. It implies that if
we make one measurement, the statistical error we should expect would simply be
the square root of the measured quantity. For example, if we count the number of
γ-ray photons coming from a radioactive source using a GM tube and get a
number N, the statistical error we should expect will simply be Fortunately,
most of the processes we encounter in the field of radiation detection and
measurement, such as the activity of a radioisotope, photoelectric effect, and
electron multiplication in a PMT tube, can all be very well described by Poisson
statistics.

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Probability Distributions
Ronald N. Forthofer, ... Mike Hernandez, in Biostatistics (Second Edition), 2007

5.2.1 Poisson Probabilities

The Poisson distribution arises from either of two models. In one model —
quantities, for example — bacteria are assumed to be distributed at random in
some medium with a uniform density of λ(lambda) per unit area. The number of
bacteria colonies found in a sample area of size A follows the Poisson distribution
with a parameter μ equal to the product of λ and A.
In terms of the model over time, we assume that the probability of one event in a
short interval of length t1 is proportional to t1 — that is, Pr{exactly one event} is
approximately λt1. Another assumption is that t1 is so short that the probability of
more than one event during this interval is almost zero. We also assume that what
happens in one time interval is independent of the happenings in another interval.
Finally, we assume that λ is constant over time. Given these assumptions, the
number of occurrences of the event in a time interval of length t follows the
Poisson distribution with parameter μ, where μ is the product of λ and t.
The Poisson probability mass function is

where e is a constant approximately equal to 2.71828 and μ is the parameter of the

Poisson distribution. Usually μ is unknown and we must estimate it from the
sample data. Before considering an example, we shall demonstrate in Table 5.3 the
use of the probability mass function for the Poisson distribution to calculate the
probabilities when μ = 1 and μ = 2. These probabilities are not difficult to calculate,
particularly when μ is an integer. There is also a recursive relation between the
probability that X = x + 1 and the probability that X = x that simplifies the
calculations:

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Table 5.3. Calculation of poisson probabilities, Pr{X = x} = e−μ μx/x!, for μ = 1 and 2.

μ=1 μ=2

x e−1 * 1x/x! = Pr{X = x} e−1 * 2x/x! = Pr{X = x}

0 0.3679 * 1/1 = 0.3679 0.1353 * 1/1 = 0.1353

1 0.3679 * 1/1 = 0.3679 0.1353 * 2/1 = 0.2707

2 0.3679 * 1/2 = 0.1839 0.1353 * 4/2 = 0.2707

3 0.3679 * 1/6 = 0.0613 0.1353 * 8/6 = 0.1804

4 0.3679 * 1/24 = 0.0153 0.1353 * 16/24 = 0.0902

5 0.3679 * 1/120 = 0.0031 0.1353 * 32/120 = 0.0361

6 0.3679 * 1/720 = 0.0005 0.1353 * 64/720 = 0.0120

7 0.3679 * 1/5040 = 0.0001 0.1353 * 128/5040 = 0.0034

8 0.1353 * 256/40320 = 0.0009

9 0.1353 * 512/362880 = 0.0002

1.0000 0.9999

for x beginning at a value of 0. For example, for μ = 2,

which is the value shown in Table 5.3.

These probabilities are also found in Appendix Table B3, which gives the Poisson
probabilities for values of μ beginning at 0.2 and increasing in increments of 0.2 up
to 2.0, then in increments of 0.5 up to 7, and in increments of 1 up to 17.
Computer software can provide the Poisson probabilities for other values of μ (see
Program Note 5.1 on the website). Note that the Poisson distribution is totally
determined by specifying the value of its one parameter, μ. The plots in Figure 5.4
show the shape of the Poisson probability mass and cumulative distribution
functions with μ = 2.

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Figure 5.4. Poisson (μ = 2) probability mass and cumulative distribution functions.

The shape of the Poisson probability mass function with μ equal to 2 (the top plot
in Figure 5.4) is similar to the binomial mass function for a sample of size 10 and π
equal to 0.2 just shown. The cdf (the bottom plot in Figure 5.4) has the same
general shape as that shown in the preceding binomial example, but the shape is
easier to see here, since there are more values for the X variable shown on the
horizontal axis.

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Random Variables
Andrew F. Siegel, in Practical Business Statistics (Seventh Edition), 2016

The Poisson Distribution

The Poisson distribution, like the binomial, is a counted number of times
something happens. The difference is that there is no specified number n of
possible tries. Here is one way that it can arise. If an event happens independently
and randomly over time, and the mean rate of occurrence is constant over time,
then the number of occurrences in a fixed amount of time will follow the Poisson
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distribution.13 The Poisson is a discrete distribution (because you can list the
possibilities as 0, 1, 2, 3,…) and depends only on the mean number of occurrences
expected.
Here are some random variables that might follow a Poisson distribution:
1. The number of orders your firm receives tomorrow.
2. The number of people who apply for a job tomorrow to your human resources
division.
3. The number of defects in a finished product.
4. The number of calls your firm receives next week for help concerning an “easy-
to-assemble” toy.
5. A binomial number X when n is large and π is small.
The following figures show what the Poisson probabilities look like for a system
expecting a mean of 0.5 occurrence (Fig. 7.5.1), 2 occurrences (Fig. 7.5.2), and 20
occurrences (Fig. 7.5.3). Note from the bell shape of Fig. 7.5.3 that the Poisson
distribution is approximately normal when many occurrences are expected.

Fig. 7.5.1. The Poisson distribution with 0.5 occurrences expected is a skewed
distribution. There is a high probability, 0.607, that no occurrences will happen at
all.

Fig. 7.5.2. The Poisson distribution with two occurrences expected. The distribution
is still somewhat skewed.

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Fig. 7.5.3. The Poisson distribution with 20 occurrences expected. The distribution,
although still discrete, is now fairly close to normal.

There are three important facts about a Poisson distribution. These facts, taken
together, tell you how to find probabilities for a Poisson distribution when you
know only its mean.

For a Poisson Distribution

1. The standard deviation is always equal to the square root of the mean:
.
2. The exact probability that a Poisson random variable X with mean μ is
equal to a is given by the formula

where e = 2.71828… is a special number.14

3. If the mean is large, then the Poisson distribution is approximately
normal.

Example
How Many Warranty Returns?
Because your firm’s quality is so high, you expect only 1.3 of your products to
be returned, on average, each day for warranty repairs. What are the chances
that no products will be returned tomorrow? That one will be returned? How
about two? How about three?
Since the mean (1.3) is so small, exact calculations are needed. Here are the
details:

From these basic probabilities, you could add up the appropriate probabilities
for 0, 1, and 2 to also find the probability that two items or fewer will be

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returned. The probability is, then, 0.27253 + 0.35429 + 0.23029 = 0.857, or
85.7%.
To use Excel to compute these probabilities, you could use the function
“=POISSON (value, mean, FALSE)” to find the probability that a Poisson
random variable is exactly equal to some value, and you could use
“=POISSON (value, mean, TRUE)” to find the probability that a Poisson
random variable is less than or equal to the value. Here are the results:

Example
How Many Phone Calls?
Your firm handles 460 calls per day, on average. Assuming a Poisson
distribution, find the probability that you will be overloaded tomorrow, with
500 or more calls received.
This may be computed directly in Excel using the formula

to find the answer 0.0341, because the POISSON function finds the
probability of being less than or equal to a given number, then we use the
complement rule to find the probability of being greater; note that being “500
or more” is the complement of the event “499 or less.”
The mean, μ = 460, is given, and it follows that the standard deviation is
. The normal approximation is reasonable
because the mean (460) is so large. Since the normal distribution is
continuous, any value over 499.5 will round to 500 or more. For intuition, the
standardized number of calls is

Our situation involves being more than 1.84 standard deviations above the
mean, so we expect to see a few percent. Using the normal distribution, the
answer is a probability of 1 − 0.967 = 0.033, fairly close to the more exact
0.341 found earlier. In conclusion, you may expect to be overloaded
tomorrow with probability only about 3% (not very likely but within
possibility).

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Time Series Analysis: Methods and Applications

Konstantinos Fokianos, in Handbook of Statistics, 2012

2 Poisson regression modeling

The Poisson distribution is commonly used to model rate of random events that
occur (arrive) in some fixed time interval. If we assume that λ denotes the rate of
arrivals, then the distribution of the random variable Y, which denotes the number
of arrivals in a fixed time interval, follows the Poisson distribution with probability
mass function
(1)

It is an elementary exercise to show that the mean and variance of Y are both equal
to λ; E[Y] = Var[Y] = λ. In fact, this property characterizes the Poisson distribution. A
related property is that the cumulant generating function of a Poisson random
variable is given by , where MY (t) is the
moment generating function of Y. This can be proved by simple calculations, but
for this presentation, it is instructive to consider the Poisson distribution as a
member of the natural exponential family of distributions.
Let f (x; θ) denote the density function of the natural exponential family with
parameter θ, i.e.,
(2)

where h(⋅), b(⋅) are known functions and is a subset of . Then, it is

straightforward to show that the Poisson distribution is expressed as in (2) with θ =
log λ, b(θ) = exp(θ), and h(x) = 1/x!. Using the fact that the cumulant generating
function of (2) is equal to b(t + θ) − b(θ), the claim follows.
In most of the applications, count data are usually observed with some covariate
information. For example, see the works of McCullagh and Nelder (1989, Section
6.3.2) where the authors study the relation between the type of ship, its year of
construction, and its service period to the expected number of damage incidents
using the logarithm of the aggregate months of service as an offset. (An offset is a
continuous regression variable with corresponding known regression coefficient
equal to 1.) In general, assume that X1, …, Xp are p regression variables observed
jointly with a count response variable Y that follows the Poisson distribution. A
possible regression model for association between the regressors and the expected
value of Y given X1, …, Xp is
(3)

This is an ordinary linear model with unknown regression coefficients βi, i = 0, …,

p to be estimated. Model (3) poses several difficulties for fitting, because the
parameter λ has to be positive. Nevertheless, in the context of time series and
when the correlation among successive observations is positive, models such as (3)
are quite useful; recall Fig. 1. A more natural choice for the regression modeling of
count data is the so called log-linear model which is specified by
(4)

where the notation is as in (3). Regardless of the chosen model, a fact that remains
true is that both (3) and (4) belong to the class of generalized linear models as
introduced by Nelder and Wedderburn (1972) and elaborated further by McCullagh
and Nelder (1989). Recall, that a generalized linear model consists of three
components; the random component that belongs to the exponential family of

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distributions (2) with E[X] = μ, the systematic component η, and the link function
g(⋅). The link function is a monotone twice differentiable function that is chosen by
the user (or can be estimated). This function associates the random and systematic
component via g(μ) = η. For the Poisson distribution, it is clear that both (3) and (4)
introduce a generalized linear model with and g(λ) = λ (for
(3)) and g(λ) = log λ (for (4)). Estimation and inference are based on the maximum
likelihood theory – this topic has been described in several texts; see McCullagh
and Nelder (1989) and Agresti (2002), for example. In the next section, we explore
these ideas in the context of count time series.

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Probability and statistics

Huw Fox, Bill Bolton, in Mathematics for Engineers and Technologists, 2002

Poisson distribution
The Poisson distribution for a variable λ is:
[23]

for k = 0, 1, 2, 3, etc. The mean of this distribution is λ and the standard deviation
is √λ. When the number n of trials is very large and the probability p small, e.g. n >
25 and p < 0.1, binomial probabilities are often approximated by the Poisson
distribution. Thus, since the mean of the binomial distribution is np (equation [21])
and the standard deviation (equation [22]) approximates to √np when p is small, we
can consider λ to represent np. Thus λ can be considered to represent the average
number of successes per unit time or unit length or some other parameter.

Key point
Approximating the binomial distribution to the Poisson distribution
If p is the possibility of an event occurring and q the possibility that it does
not occur, then q + p = 1 and so if we consider n samples, we have (q + p)n = 1
and the binomial expression gives:

If p is small then q = 1 − p × 1 and with n large the first few terms have n − 1
approximating to n, n − 2 to n, etc. The binomial expression can thus be
approximated to:

If we let np = λ then:

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But this is the series for e1 (see Table 7.1) and so 1n = e1. We can thus write
the binomial expression as:

and so the terms in the expression are given by equation [23].

Example
2% of the output per month of a mass produced product have faults. What is
the probability that of a sample of 400 taken that 5 will have faults?
Assuming the Poisson distribution, we have λ = np = 400 × 0.02 = 8 and so
equation [23] gives for k = 5:

Example
The output from a CNC machine is inspected by taking samples of 60 items.
If the probability of a defective item is 0.0015, determine the probability of
the sample having (a) two defective items, (b) more than two defective items.
(a) We have n = 60 and p = 0.0015. Thus, assuming a Poisson distribution,
we have λ = np = 60 × 0.0015 = 0.09 and so equation [23] gives the
probability of two defective items as (0.092 × e−0.09)/2! = 3.7 × 10−3 or
0.37%.
(b) The probability of there being more than two defective items is 1 − {P(0) +
P(1) + P(2)] = 1 − e−λ{1 + λ + λ2/2!) = 1 − e−0.09{1 + 0.09 + 4.5 × 10−3} = 1.36
× 10−4 or 0.01%.

Example
There is a 1.5% probability that a machine will produce a faulty component.
What is the probability that there will be at least 2 faulty items in a batch of
100?
Assuming the Poisson distribution can be used, we have λ = np = 100 × 0.015
= 1.5 and so the probability of at least 2 faulty items will be:

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Finding Probabilities
R.H. Riffenburgh, in Statistics in Medicine (Third Edition), 2012

Poisson Events Described

The Poisson distribution arises from situations in which there is a large number of
opportunities for the event under scrutiny to occur but a small chance that it will

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occur on any one trial. The number of cases of bubonic plague would follow
Poisson: a large number of patients can be found with chills, fever, tender enlarged
lymph nodes, and restless confusion, but the chance of the syndrome being plague
is extremely small for any randomly chosen patient. This distribution is named for
Siméon Denis Poisson, who published the theory in 1837. The classic use of
Poisson was in predicting the number of deaths of Prussian army officers from
horse kicks from 1875 to 1894; there was a large number of kicks, but the chance
of death from a randomly chosen kick was small.

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