Download the full version of the ebook at

https://ebookmass.com

Foundations of Quantitative Finance. Book IV:

Distribution Functions and Expectations 1st
Edition Robert R. Reitano

https://ebookmass.com/product/foundations-of-
quantitative-finance-book-iv-distribution-
functions-and-expectations-1st-edition-robert-r-
reitano/

Explore and download more ebook at https://ebookmass.com

 Recommended digital products (PDF, EPUB, MOBI) that
you can download immediately if you are interested.

Foundations of Quantitative Finance. Book V: General

Measure and Integration Theory 1st Edition Robert R.
Reitano
https://ebookmass.com/product/foundations-of-quantitative-finance-
book-v-general-measure-and-integration-theory-1st-edition-robert-r-
reitano/
testbankdeal.com

Foundations of Finance (Pearson Series in Finance)

https://ebookmass.com/product/foundations-of-finance-pearson-series-
in-finance/

testbankdeal.com

Blood Traces: Interpretation of Deposition and

Distribution 1st Edition Peter R. De Forest

https://ebookmass.com/product/blood-traces-interpretation-of-
deposition-and-distribution-1st-edition-peter-r-de-forest/

testbankdeal.com

Foundations of Finance John D. Martin

https://ebookmass.com/product/foundations-of-finance-john-d-martin/

testbankdeal.com
Foundations of Airport Economics and Finance Hans-Arthur
Vogel

https://ebookmass.com/product/foundations-of-airport-economics-and-
finance-hans-arthur-vogel/

testbankdeal.com

Foundations of Finance, Global Edition 9th Edition, (Ebook

PDF)

https://ebookmass.com/product/foundations-of-finance-global-
edition-9th-edition-ebook-pdf/

testbankdeal.com

Warehouse distribution and operations handbook David E

Mulcahy

https://ebookmass.com/product/warehouse-distribution-and-operations-
handbook-david-e-mulcahy/

testbankdeal.com

The Historical and Physical Foundations of Quantum

Mechanics Robert Golub

https://ebookmass.com/product/the-historical-and-physical-foundations-
of-quantum-mechanics-robert-golub/

testbankdeal.com

P.O.W.E.R. Learning: Foundations of Student Success 4th

Edition Robert Feldman

https://ebookmass.com/product/p-o-w-e-r-learning-foundations-of-
student-success-4th-edition-robert-feldman/

testbankdeal.com
Foundations of Quantitative
Finance
Chapman & Hall/CRC Financial Mathematics Series
Series Editors

M.A.H. Dempster
Centre for Financial Research
Department of Pure Mathematics and Statistics
University of Cambridge, UK

Dilip B. Madan
Robert H. Smith School of Business
University of Maryland, USA

Rama Cont
Department of Mathematics
Imperial College, UK

Robert A. Jarrow
Lynch Professor of Investment Management
Johnson Graduate School of Management
Cornell University, USA

Recently Published Titles

Machine Learning for Factor Investing: Python Version

Guillaume Coqueret and Tony Guida

Introduction to Stochastic Finance with Market Examples, Second Edition

Nicolas Privault

Commodities: Fundamental Theory of Futures, Forwards, and Derivatives Pricing, Second Edition
Edited by M.A.H. Dempster and Ke Tang

Introducing Financial Mathematics: Theory, Binomial Models, and Applications

Mladen Victor Wickerhauser

Financial Mathematics: From Discrete to Continuous Time

Kevin J. Hastings

Financial Mathematics: A Comprehensive Treatment in Discrete Time

Giuseppe Campolieti and Roman N. Makarov

Introduction to Financial Derivatives with Python

Elisa Alòs and Raúl Merino

The Handbook of Price Impact Modeling

Kevin T. Webster

Sustainable Life Insurance: Managing Risk Appetite for Insurance Savings & Retirement Products
Aymeric Kalife with Saad Mouti, Ludovic Goudenege, Xiaolu Tan, and Mounir Bellmane

Geometry of Derivation with Applications

Norman L. Johnson

For more information about this series please visit: https://www.crcpress.com/Chapman-and-HallCRC-

Financial-Mathematics-Series/book series/CHFINANCMTH
Foundations of Quantitative
Finance
Book IV: Distribution Functions and
Expectations

Robert R. Reitano
Brandeis International Business School
Waltham, MA
First edition published 2023
by CRC Press
6000 Broken Sound Parkway NW, Suite 300, Boca Raton, FL 33487-2742

and by CRC Press

4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN

CRC Press is an imprint of Taylor & Francis Group, LLC

© 2024 Robert R. Reitano

Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot
assume responsibility for the validity of all materials or the consequences of their use. The authors and publishers
have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright
holders if permission to publish in this form has not been obtained. If any copyright material has not been acknowl-
edged please write and let us know so we may rectify in any future reprint.

Except as permitted under U.S. Copyright Law, no part of this book may be reprinted, reproduced, transmitted, or
utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including pho-
tocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission
from the publishers.

For permission to photocopy or use material electronically from this work, access www.copyright.com or contact the
Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. For works that are
not available on CCC please contact [email protected]

Trademark notice: Product or corporate names may be trademarks or registered trademarks and are used only for
identification and explanation without intent to infringe.

ISBN: 978-1-032-20653-0 (hbk)

ISBN: 978-1-032-20652-3 (pbk)
ISBN: 978-1-003-26458-3 (ebk)

DOI: 10.1201/9781003264583

Typeset in CMR10
by KnowledgeWorks Global Ltd.

Publisher’s note: This book has been prepared from camera-ready copy provided by the authors.
to Dorothy and Domenic
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Contents

Preface xi

Author xiii

Introduction xv

1 Distribution and Density Functions 1

1.1 Summary of Book II Results . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.1 Distribution Functions on R . . . . . . . . . . . . . . . . . . . . . . . 1
1.1.2 Distribution Functions on Rn . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Decomposition of Distribution Functions on R . . . . . . . . . . . . . . . . 6
1.3 Density Functions on R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3.1 The Lebesgue Approach . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.3.2 Riemann Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.3.3 Riemann-Stieltjes Framework . . . . . . . . . . . . . . . . . . . . . . 14
1.4 Examples of Distribution Functions on R . . . . . . . . . . . . . . . . . . . 16
1.4.1 Discrete Distribution Functions . . . . . . . . . . . . . . . . . . . . . 16
1.4.2 Continuous Distribution Functions . . . . . . . . . . . . . . . . . . . 19
1.4.3 Mixed Distribution Functions . . . . . . . . . . . . . . . . . . . . . . 25

2 Transformed Random Variables 29

2.1 Monotonic Transformations . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.2 Sums of Independent Random Variables . . . . . . . . . . . . . . . . . . . . 32
2.2.1 Distribution Functions of Sums . . . . . . . . . . . . . . . . . . . . . 32
2.2.2 Density Functions of Sums . . . . . . . . . . . . . . . . . . . . . . . 39
2.3 Ratios of Random Variables . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2.3.1 Independent Random Variables . . . . . . . . . . . . . . . . . . . . . 44
2.3.2 Example without Independence . . . . . . . . . . . . . . . . . . . . . 53

3 Order Statistics 57
3.1 M -Samples and Order Statistics . . . . . . . . . . . . . . . . . . . . . . . . 57
3.2 Distribution Functions of Order Statistics . . . . . . . . . . . . . . . . . . . 59
3.3 Density Functions of Order Statistics . . . . . . . . . . . . . . . . . . . . . 60
3.4 Joint Distribution of All Order Statistics . . . . . . . . . . . . . . . . . . . 62
3.5 Density Functions on Rn . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.6 Multivariate Order Functions . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.6.1 Joint Density of All Order Statistics . . . . . . . . . . . . . . . . . . 69
3.6.2 Marginal Densities and Distributions . . . . . . . . . . . . . . . . . . 70
3.6.3 Conditional Densities and Distributions . . . . . . . . . . . . . . . . 73
3.7 The Rényi Representation Theorem . . . . . . . . . . . . . . . . . . . . . . 75

vii
viii Contents

4 Expectations of Random Variables 1 81

4.1 General Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.1.1 Is Expectation Well Defined? . . . . . . . . . . . . . . . . . . . . . . 83
4.1.2 Formal Resolution of Well-Definedness . . . . . . . . . . . . . . . . . 85
4.2 Moments of Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
4.2.1 Common Types of Moments . . . . . . . . . . . . . . . . . . . . . . . 88
4.2.2 Moment Generating Function . . . . . . . . . . . . . . . . . . . . . . 89
4.2.3 Moments of Sums – Theory . . . . . . . . . . . . . . . . . . . . . . . 91
4.2.4 Moments of Sums – Applications . . . . . . . . . . . . . . . . . . . . 94
4.2.5 Properties of Moments . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.2.6 Examples–Discrete Distributions . . . . . . . . . . . . . . . . . . . . 102
4.2.7 Examples–Continuous Distributions . . . . . . . . . . . . . . . . . . 104
4.3 Moment Inequalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
4.3.1 Chebyshev’s Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . 109
4.3.2 Jensen’s Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
4.3.3 Kolmogorov’s Inequality . . . . . . . . . . . . . . . . . . . . . . . . . 113
4.3.4 Cauchy-Schwarz Inequality . . . . . . . . . . . . . . . . . . . . . . . 114
4.3.5 Hölder and Lyapunov Inequalities . . . . . . . . . . . . . . . . . . . 117
4.4 Uniqueness of Moments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
4.4.1 Applications of Moment Uniqueness . . . . . . . . . . . . . . . . . . 123
4.5 Weak Convergence and Moment Limits . . . . . . . . . . . . . . . . . . . . 125

5 Simulating Samples of RVs – Examples 135

5.1 Random Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5.1.1 Discrete Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . 135
5.1.2 Simpler Continuous Distributions . . . . . . . . . . . . . . . . . . . . 140
5.1.3 Normal and Lognormal Distributions . . . . . . . . . . . . . . . . . . 141
5.1.4 Student T Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 144
5.2 Ordered Random Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
5.2.1 Direct Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
5.2.2 The Rényi Representation . . . . . . . . . . . . . . . . . . . . . . . . 149

6 Limit Theorems 153

6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
6.2 Weak Convergence of Distributions . . . . . . . . . . . . . . . . . . . . . . 156
6.2.1 Student T to Normal . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
6.2.2 Poisson Limit Theorem . . . . . . . . . . . . . . . . . . . . . . . . . 158
6.2.3 “Weak Law of Small Numbers” . . . . . . . . . . . . . . . . . . . . . 159
6.2.4 De Moivre-Laplace Theorem . . . . . . . . . . . . . . . . . . . . . . 161
6.2.5 The Central Limit Theorem 1 . . . . . . . . . . . . . . . . . . . . . . 165
6.2.6 Smirnov’s Theorem on Uniform Order Statistics . . . . . . . . . . . 168
6.2.7 A Limit Theorem on General Quantiles . . . . . . . . . . . . . . . . 172
6.2.8 A Limit Theorem on Exponential Order Statistics . . . . . . . . . . 174
6.3 Laws of Large Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
6.3.1 Tail Events and Kolmogorov’s 0-1 Law . . . . . . . . . . . . . . . . . 176
6.3.2 Weak Laws of Large Numbers . . . . . . . . . . . . . . . . . . . . . . 178
6.3.3 Strong Laws of Large Numbers . . . . . . . . . . . . . . . . . . . . . 183
6.3.4 A Limit Theorem in EVT . . . . . . . . . . . . . . . . . . . . . . . . 187
6.4 Convergence of Empirical Distributions . . . . . . . . . . . . . . . . . . . . 189
6.4.1 Definition and Basic Properties . . . . . . . . . . . . . . . . . . . . . 190
6.4.2 The Glivenko-Cantelli Theorem . . . . . . . . . . . . . . . . . . . . . 195
6.4.3 Distributional Estimates for Dn (s) . . . . . . . . . . . . . . . . . . . 197
 Visit https://ebookmass.com
now to explore a rich
collection of eBooks and enjoy
exciting offers!
Contents ix

7 Estimating Tail Events 2 201

7.1 Large Deviation Theory 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201
7.1.1 Chernoff Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202
7.1.2 Cramér-Chernoff Theorem . . . . . . . . . . . . . . . . . . . . . . . . 208
7.2 Extreme Value Theory 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
7.2.1 Fisher-Tippett-Gnedenko Theorem . . . . . . . . . . . . . . . . . . . 211
7.2.2 The Hill Estimator, γ > 0 . . . . . . . . . . . . . . . . . . . . . . . . 212
7.2.3 F ∈ D(Gγ ) is Asymptotically Pareto for γ > 0 . . . . . . . . . . . . 217
7.2.4 F ∈ D(Gγ ), γ > 0, then γ H ≈ γ . . . . . . . . . . . . . . . . . . . . 226
7.2.5 F ∈ D(Gγ ), γ > 0, then γ H →1 γ . . . . . . . . . . . . . . . . . . . . 232
7.2.6 Asymptotic Normality of the Hill Estimator . . . . . . . . . . . . . . 236
7.2.7 The Pickands-Balkema-de Haan Theorem: γ > 0 . . . . . . . . . . . 237

Bibliography 243

Index 247
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Preface

The idea for a reference book on the mathematical foundations of quantitative finance
has been with me throughout my professional and academic careers in this field, but the
commitment to finally write it didn’t materialize until completing my first “introductory”
book in 2010.
My original academic studies were in “pure” mathematics in a field of mathematical
analysis, and neither applications generally nor finance in particular were then even on
my mind. But on completion of my degree, I decided to temporarily investigate a career in
applied math, becoming an actuary, and in short order became enamored with mathematical
applications in finance.
One of my first inquiries was into better understanding yield curve risk management, ulti-
mately introducing the notion of partial durations and related immunization strategies. This
experience led me to recognize the power of greater precision in the mathematical specifica-
tion and solution of even an age-old problem. From there my commitment to mathematical
finance was complete, and my temporary investigation into this field became permanent.
In my personal studies, I found that there were a great many books in finance that
focused on markets, instruments, models and strategies, and which typically provided an
informal acknowledgement of the background mathematics. There were also many books
in mathematical finance focusing on more advanced mathematical models and methods,
and typically written at a level of mathematical sophistication requiring a reader to have
significant formal training and the time and motivation to derive omitted details.
The challenge of acquiring expertise is compounded by the fact that the field of quanti-
tative finance utilizes advanced mathematical theories and models from a number of fields.
While there are many good references on any of these topics, most are again written at
a level beyond many students, practitioners and even researchers of quantitative finance.
Such books develop materials with an eye to comprehensiveness in the given subject matter,
rather than with an eye toward efficiently curating and developing the theories needed for
applications in quantitative finance.
Thus the overriding goal I have for this collection of books is to provide a complete and
detailed development of the many foundational mathematical theories and results one finds
referenced in popular resources in finance and quantitative finance. The included topics
have been curated from a vast mathematics and finance literature for the express purpose
of supporting applications in quantitative finance.
I originally budgeted 700 pages per book, in two volumes. It soon became obvious
this was too limiting, and two volumes ultimately turned into ten. In the end, each book
was dedicated to a specific area of mathematics or probability theory, with a variety of
applications to finance that are relevant to the needs of financial mathematicians.
My target readers are students, practitioners and researchers in finance who are quantita-
tively literate, and recognize the need for the materials and formal developments presented.
My hope is that the approach taken in these books will motivate readers to navigate these
details and master these materials.
Most importantly for a reference work, all ten volumes are extensively self-referenced.
The reader can enter the collection at any point of interest, and then using the references

xi
xii Preface

cited, work backwards to prior books to fill in needed details. This approach also works for
a course on a given volume’s subject matter, with earlier books used for reference, and for
both course-based and self-study approaches to sequential studies.
The reader will find that the developments herein are presented at a much greater level
of detail than most advanced quantitative finance books. Such developments are of necessity
typically longer, more meticulously reasoned, and therefore can be more demanding on the
reader. Thus before committing to a detailed line-by-line study of a given result, it is always
more efficient to first scan the derivation once or twice to better understand the overall logic
flow.
I hope the additional details presented will support your journey to better understanding.
I am grateful for the support of my family: Lisa, Michael, David, and Jeffrey, as well as
the support of friends and colleagues at Brandeis International Business School.

Robert R. Reitano
Brandeis International Business School
Author

Robert R. Reitano is Professor of the Practice of Finance at the Brandeis International

Business School where he specializes in risk management and quantitative finance. He pre-
viously served as MSF Program Director, and Senior Academic Director. He has a PhD in
mathematics from MIT, is a fellow of the Society of Actuaries, and a Chartered Enterprise
Risk Analyst. Dr. Reitano consults in investment strategy and asset/liability risk manage-
ment, and previously had a 29-year career at John Hancock/Manulife in investment strategy
and asset/liability management, advancing to Executive Vice President & Chief Investment
Strategist. His research papers have appeared in a number of journals and have won an
Annual Prize of the Society of Actuaries and two F.M. Redington Prizes of the Investment
Section of the Society of the Actuaries. Dr. Reitano serves on various not-for-profit boards
and investment committees.

xiii
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
Introduction

Foundations of Quantitative Finance is structured as follows:

Book I: Measure Spaces and Measurable Functions
Book II: Probability Spaces and Random Variables
Book III: The Integrals of Riemann, Lebesgue, and (Riemann-)Stieltjes
Book IV: Distribution Functions and Expectations
Book V: General Measure and Integration Theory
Book VI: Densities, Transformed Distributions, and Limit Theorems
Book VII: Brownian Motion and Other Stochastic Processes
Book VIII: Itô Integration and Stochastic Calculus 1
Book IX: Stochastic Calculus 2 and Stochastic Differential Equations
Book X: Classical Models and Applications in Finance

The series is logically sequential. Books I, III, and V develop foundational mathematical
results needed for the probability theory and finance applications of Books II, IV, and
VI, respectively. Then Books VII, VIII, and IX develop results in the theory of stochastic
processes. While these latter three books introduce ideas from finance as appropriate, the
final realization of the applications of these stochastic models to finance is deferred to Book
X.
This Book IV, Distribution Functions and Expectations, extends the investigations of
Book II using the formidable tools afforded by the Riemann, Lebesgue, and Riemann-
Stieltjes integration theories of Book III.
To set the stage, Chapter 1 opens with a short review of the key results on distribution
functions from Books I and II. The focus here is on the connections between distribution
functions of random variables and random vectors and distribution functions induced by
Borel measures on R and Rn . A complete functional characterization of distribution func-
tions on R is then derived, providing a natural link between general probability theory and
the discrete and continuous theories commonly encountered. This leads to an investigation
into the existence of density functions associated with various distribution functions. Here
the integration theories from Book III are recalled to frame this investigation, and the gen-
eral results to be seen in Book VI using the Book V integration theory are introduced. The
chapter ends with a catalog of many common distribution and density functions from the
discrete and continuous probability theories.
Chapter 2 investigates transformations of random variables. For example, given a random
variable X and associated distribution/density function, what is the distribution/density
function of the random variable g(X) given a Borel measurable function g(x)? More gen-
erally, what are the distribution functions and densities of sums and ratios of random vari-
ables, where now g(x) is a multivariate function? The first section addresses the distribution
function question for strictly monotonic g(x) and the density question when such g(x) is
differentiable. More general transformations are deferred to Book VI using the change of
variable results from the integration theory of Book V. A number of results are then de-
rived for the distribution and density functions of sums of independent random variables
using the integration theories of Book III. The various forms of such distribution functions
then reflect the assumptions made on the underlying distribution functions and/or density

xv
xvi Introduction

functions. Examples and exercises connect the theory with the Chapter 1 catalog of distri-
bution functions. The chapter ends with an investigation into ratios of independent random
variables, as well as an example using dependent random variables.
A special example of an order statistic was introduced in Chapter 9 of Book II on
extreme value theory, where this random variable was defined as the maximum of a collection
of independent, identically distributed random variables. Order statistics, the subject of
Chapter 3, generalize this notion, converting such a collection into ordered random variables.
Distribution and density functions of such variates are first derived, before turning to the
joint distribution function of all order statistics. This latter derivation introduces needed
combinatorial ideas as well as results on multivariate integration from Book III and a more
general result from Book V. Various density functions of order statistics are then derived,
beginning with the joint density and then proceeding to the various marginal and conditional
densities of these random variables. The final investigation is into the Rényi representation
theorem for the order statistics of an exponential distribution. While seemingly of narrow
applicability as a result of exponential variables, this theorem will be seen to be more widely
applicable.
Expectations of random variables and transformed random variables are introduced in
Chapter 4 in the general context of a Riemann-Stieltjes integral. In the special case of dis-
crete or continuous probability theory, this definition reduces to the familiar notions from
these theories using Book III results. But this definition also raises existence and consis-
tency questions. The roadmap to a final solution is outlined, foretelling needed results from
the integration theory of Book V and the final detailed resolution in Book VI. Various
moments, the moment generating function, and properties of such are then developed, as
well as examples from the distribution functions introduced earlier. Moment inequalities of
Chebyshev, Jensen, Kolmogorov, Cauchy-Schwarz, Hölder, and Lyapunov are derived, be-
fore turning to the question of uniqueness of moments and the moment generating function.
The chapter ends with an investigation of weak convergence of distributions and moment
limits, developing a number of results underlying the “method of moments.”
Given a random variable X defined on a probability space, Chapter 4 of Book II derived
the theoretical basis for, and several constructions of, a probability space on which could be
defined a countable collection of independent random variables, identically distributed with
X. Such spaces provide a rigorous framework for the laws of large numbers of that book, and
the limit theorems of this book’s Chapter 6. This framework is in the background for Chapter
5, but the focus here is on the actual generation of random sample collections using the
previous theory and the various distribution functions introduced in previous chapters. The
various sections then exemplify simulation approaches for discrete distributions, and then
continuous distributions, using the left-continuous inverse function F ∗ (y) and independent,
continuous uniform variates commonly provided by various mathematical software. For
generating normal, lognormal, and Student’s T variates, these constructions are, at best,
approximate, and the chapter derives the exact constructions underlying the Box-Muller
transform and the Bailey transform, respectively. The final section turns to the simulation
of order statistics, both directly and with the aid of the Rényi representation theorem.
Chapter 6 begins with a more formal short review of the theoretical framework of Book
II for the construction of a probability space on which a countable collection of independent,
identically distributed random variables can be defined, and thus on which limit theorems
of various types can be addressed. The first section then addresses weak convergence of
various distribution function sequences. Among those studied are the Student’s T, Poisson,
DeMoivre-Laplace, and a first version of the central limit theorem, as well as Smirnov’s result
on uniform order statistics, a general result on exponential order statistics, and finally a limit
theorem on quantiles. The next section generalizes the study of laws of large numbers of
Book II using moment defined limits, and proves a limit theorem on extreme value theory
Introduction xvii

identified in that book. The final section studies empirical distribution functions, and in
particular, derives the Glivenko-Cantelli theorem on convergence of empirical distributions
to the underlying distribution function. Kolmogorov’s theorem on the limiting distribution
of the maximum error in an empirical distribution is also discussed, as are related results.
Continuing the study initiated in Chapter 9 of Book II, Chapter 7 again has two main
themes. The first topic is large deviation theory. Following a summary of the main result
and open questions of Book II, the section introduces and exemplifies the Chernoff bound,
which requires the existence of the moment generating function. Following an analysis of
properties of this bound, and introducing tilted distributions and their relevant properties,
the section concludes with the Cramér-Chernoff theorem, which conclusively settles the
open questions of Book II. The second major section is on extreme value theory and focuses
on two matters. The first is a study of the Hill estimator for the extreme value index γ for
γ > 0, the index values most commonly encountered in finance applications. This estimator
is introduced and exemplified in the context of Pareto distributions, and the Hill result of
convergence with probability 1 derived, along with a variety of related results. For this,
earlier developments in order statistics will play a prominent role, as does a representation
theorem of Karamata. The second major investigation is into the Pickands-Balkema-de
Haan theorem, a result that identifies the limiting distribution of certain conditional tail
distributions. This final result was approximated in the Book II development, but here it can
be derived in detail with another representation theorem of Karamata. Using an example,
it is then shown that the convergence promised by this result need not be fast.
I hope this book and the other books in the collection serve you well.

Notation 0.1 (Referencing within FQF Series) To simplify the referencing of results
from other books in this series, we use the following convention.
A reference to “Proposition I.3.33” is a reference to Proposition 3.33 of Book I, while
“Chapter III.4” is a reference to Chapter 4 of Book III, and “II.(8.5)” is a reference to
formula (8.5) of Book II, and so forth.
 Visit https://ebookmass.com
now to explore a rich
collection of eBooks and enjoy
exciting offers!
Taylor & Francis
Taylor & Francis Group
http://taylorandfrancis.com
1
Distribution and Density Functions

1.1 Summary of Book II Results

As the goal of this book is to study distribution functions, it is perhaps worthwhile to
summarize some of the key results of earlier books.

Notation 1.1 (µ → λ) In Book II, probability spaces were generally denoted by (S, E, µ),
where S is the measure space, here also called a “sample” space, E is the sigma algebra of
measurable sets, here also called the collection of “events,” and µ is the probability measure
defined on all sets in E. In this book we retain most of this notational convention. However,
because µ will often be called upon in later chapters to represent the “mean” of a given
distribution as is conventional, we will represent the probability measure herein by λ or by
another Greek letter.

1.1.1 Distribution Functions on R

Book II introduced definitions and basic properties. Beginning with Definition II.3.1:

Definition 1.2 (Random variable) Given a probability space (S, E, λ), a random vari-
able (r.v.) is a real-valued function:

X : S −→ R,

such that for any bounded or unbounded interval, (a, b) ⊂ R :

X −1 (a, b) ∈ E.

The distribution function (d.f.), or cumulative distribution function (c.d.f.),

associated with X, denoted by F or FX , is defined on R by

F (x) = λ[X −1 (−∞, x]]. (1.1)

Properties of such functions were summarized in Proposition II.6.1.

Proposition 1.3 (Properties of a d.f. F (x)) Given a random variable X on a proba-

bility space (S, E, λ), the distribution function F (x) associated with X has the following
properties:

1. F (x) is a nonnegative, increasing function on R which is Borel, and hence, Lebesgue

measurable.
2. For all x :
lim F (y) = F (x), (1.2)
y→x+

DOI: 10.1201/9781003264583-1 1
Random documents with unrelated
content Scribd suggests to you:
 For my second instance. The next year, 1857, was Mutiny Year,
and closed upon an England raging mad over the story of Cawnpore.
Dickens and Wilkie Collins, on a tour together in the north of
England, had contrived a Christmas Number for Household Words,
announced and entitled The Perils of Certain English Prisoners, and
their Treasures in Women, Children, Silver and Jewels. The public
expected a red-hot account of the Nana Sahib, the treacherous
embarkation, the awful voyage down the Ganges. It was all there, to
the man’s hand, with illimitable applause for his mere inviting. But it
might inflame—and, inflaming, hurt—the nation’s temper, and
therefore he would have none of it: he, Dickens, the great literary
Commoner; lord over millions of English and to them, and to right
influence on them, bounden. Therefore the public got something
more profitable than it craved for: it got a romantic story empty of
racial or propagandist hatred; a simple narrative of peril and
adventure on a river in South America.

VI
But now let us see what a light this conscious popularity throws
upon two important events in Dickens’ career: his visit to the United
States in 1842, and his invention, the next year, of the “Christmas
Book.”
Dickens went over to America as a great personage: securely,
but neither immodestly nor overweeningly conscious of it. He went
over also as a great and genuine early-Victorian radical; something
better than any politician; an unbribed and unbribable writer,
immensely potent, with a pen already dedicated to war against social
abuses. He landed at Boston, fully expecting to see Liberty in
realisation under the star-spangled banner. He found Colonel Diver
and Mr. Jefferson Brick, Mr. La Fayette Kettle and the Honourable
Elijah Pogram. He found, of course, a fervent and generous
hospitality that sprang, in Forster’s words, “from feelings honourable
both to giver and receiver,” and was bestowed sincerely, if with a
touch of bravado and challenge—“We of the New World want to
show you, by extending the kind of homage that the Old World
reserves for kings and conquerors, to a young man with nothing to
distinguish him but his heart and his genius, what it is we think in
these parts worthier of honour than birth or wealth, a title or a
sword.” These are Forster’s words again, and they do well enough.
The hospitality included no doubt a good deal of the ridiculous: food
for innocent caricature of the kind provided in the great Pogram
levee where the two Literary Ladies are presented to the Honourable
Elijah by the Mother of the Modern Gracchi.

“To be presented to a Pogram,” said Miss Codger, “by a

Hominy, indeed a thrilling moment is it in its impressiveness on
what we call our feelings. But why we call them so, and why
impressed they are, or if impressed they are at all, or if at all we
are, or if there really is, oh gasping one! a Pogram or a Hominy,
or any active principle to which we give those titles is a topic,
Spirit searching, light-abandoned, much too vast to enter on, at
this unlooked-for Crisis.” “Mind and Matter,” said the lady in the
wig, “glide swift into the vortex of immensity. Howls the sublime,
and softly sleeps the calm Ideal, in the whispering chambers of
Imagination. To hear it, sweet it is. But then outlaughs the stern
philosopher, and saith to the Grotesque, ‘What ho! arrest for me
that agency! Go bring it here! And so the vision fadeth.’”

I will not take oath that I have not heard faint echoes of that sort of
talk at literary gatherings within a mile or so of this very spot. But if it
be not to some extent endemic in America even to-day, then all I can
say is that certain American authors (Mrs. Edith Wharton for one)
have misrepresented it far more cruelly than ever did Charles
Dickens, or certainly than I, with no knowledge at all, have any wish
to do.
But what brought Dickens up with a round turn was his discovery
(as he believed) that in this land of freedom no man was free to
speak his thought.
 “I believe,” he wrote to Forster on Feb. 24th, “there is no
country on the face of the earth where there is less freedom of
opinion on any subject in reference to which there is a broad
difference of opinion than in this.... There!—I write the words with
reluctance, disappointment and sorrow: but I believe it from the
bottom of my soul.”

He did believe it, and it shocked him inexpressibly. “Very well,” it may
be answered; “but there were obligations. A man should not publicly
criticise a country in which he is an honoured guest.” Yes, but he had
gone out to the States with intent to discuss the question of
copyright, or rather of literary piracy, in which American law and
practice were so flagrantly immoral that he had never a doubt of
getting both rectified by a little heart-to-heart talk (as we call it now)
with some of their public men and lawgivers. Dickens was always a
good man of business. As the most widely-read of British authors,
and therefore the chief of sufferers, he could speak authoritatively on
behalf of his poorer brethren. He went, and received on a grand
scale that shock which on a far modester scale many of us have
experienced in our time, with the sort of embarrassment one feels
(let us say) in sitting down to Bridge with a very delightful person
whose code in the matter of revoking is rather notoriously “off
colour.” Let me illustrate this by the remark of a just man at
Washington in the debate preceding the latest copyright enactment.
A member of Congress had pleaded for the children of the
backwoods—these potential Abraham Lincolns devouring education
by the light of pine-knot fires—how desirable that these little Sons of
Liberty should be able to purchase their books (as he put it) “free of
authorial expenses!” “Hear, hear!” retorted my just man. “And the
negroes of the South too—so fond of chicken free of farmer-ial
expenses!”—A great saying!
And yet Dickens was wrong: in my opinion wrong as an English
Gentleman, being America’s Guest. On the balance I hold that he
should have thought what he thought and, thinking it, have
shortened his visit and come silently away.
 Well, Dickens discussed the matter with Washington Irving,
Prescott, Hoffman, Bryant, Dana and others, and found that while
every writer in America was agreed upon the atrocious state of the
law, not a man of them dared to speak out. The suggestion that an
American could be found with temerity enough to hint that his
country was possibly wrong struck the boldest dumb. “Then,” said
Dickens, “I shall speak out”: and he did. “I wish you could have
seen,” he writes home, “the faces that I saw, down both sides of the
table at Hartford, when I began to talk about Scott.” [Remember,
please, this is my interjection, Gentlemen, that, on a small portion of
his dues, on a 10 per cent. (say) of his plundered sales, the great Sir
Walter Scott would have died in calm of mind and just prosperity.] “I
wish you could have heard how I gave it out. My blood so boiled as I
thought of the monstrous injustice that I felt as if I were twelve feet
high when I thrust it down their throats.”
The violence of the reaction upon Dickens you can of course
study in American Notes and Martin Chuzzlewit. But the real import
of these two books and the violence of resentment they raised, we
shall not understand without realising that Dickens went over, was
feasted: was disappointed, then outraged, and spoke his mind, from
first to last as a representative of the democracy of this country,
always conscious of a great, if undefined, responsibility and, under
disappointment, resolute to be brave, at whatever cost of favour.

VII
The same grand consciousness seems to me to have been the
true inspiration of his “Christmas Books.” For a private confession, I
dislike them: I find them—A Christmas Carol, The Chimes, The
Cricket on the Hearth, The Battle of Life, The Haunted Man—grossly
sentimental and as grossly overcharged with violent conversions to
the “Christmas Spirit.” For a further confession I greatly prefer
several of his later Christmas Stories in Household Words and All
the Year Round—The Wreck of the “Golden Mary” for instance, or
Dr. Marigold’s Prescriptions or The Holly-Tree Inn—to this classic
five which are still separated in the collected editions under the title
of “Christmas Books.” He himself confessed, in a general preface of
less than a dozen lines, his inability to work out character in the limits
he assigned himself—a hundred pages or so. “My chief purpose,” he
says of A Christmas Carol, “was, in a whimsical kind of masque
which the good humour of the season justified, to awaken some
loving and forbearing thoughts, never out of season in a Christian
land.” But he took it as a mission, and quite seriously. Christmas to
England had always meant, and should mean, a festival of
neighbourly goodwill and robust hospitality. Listen to the old Carols:

Now thrice welcome, Christmas,

Which brings us good cheer,
Minced pies and plum porridge,
Good ale and strong beer;
With pig, goose and capon,
The best that may be,
So well doth the weather
And our stomachs agree.

Or

Now that the time is come wherein

Our Saviour Christ was born,
The larders full of beef and pork,
The garners fill’d with corn....

Or

Bring us in good ale, and bring us in good ale;

For our blessed Lady’s sake, bring us in good ale.
These out of a score or more verses I might quote from Poor Robin’s
Almanack and the like. But take Campion’s more aristocratic Muse:

Now winter nights enlarge

The number of their hours,
And clouds their storms discharge
Upon the airy towers.
Let now the chimneys blaze
And cups o’erflow with wine;
Let well-attuned words amaze
With harmony divine.
Now yellow waxen lights
Shall wait on honey love,
While youthful revels, masques, and courtly sights
Sleep’s leaden spell remove.

Carry this again down to Frederick Tennyson’s The Holy Tide:

The days are sad, it is the Holy tide;

The Winter morn is short, the Night is long;
So let the lifeless Hours be glorified
With deathless thoughts and echo’d in sweet song:
And through the sunset of this purple cup
They will resume the roses of their prime,
And the old Dead will hear us and wake up,
Pass with dim smiles and make our hearts sublime.

“An Englishman’s house is his Castle,” said an immortal farmer

at a Fat Stock Dinner. “The storms may assail it and the winds
whistle round it, but the King himself cannot do so.” Dickens saw
always the Englishman’s house as his castle, fortified and
provisioned against the discharge of snow and sleet: always most
amply provisioned! Witness his picture of Christmas at Manor Farm,
Dingley Dell—Old Wardle with his friends, neighbours, poor
relations, and his farm-labourers too, all sitting down together to a
colossal supper “and a mighty bowl of wassail something smaller
than an ordinary washhouse copper, in which the hot apples were
hissing and bubbling with a rich look and jolly sound that were
perfectly irresistible.”
Old Wardle, in fact, is in the direct line of succession to
Chaucer’s Frankeleyne—

Withoute bake mete was never his hous,

Of fish and flesh, and that so plenteous,
It snewed in his hous of mete and drink.

Dickens, I repeat to you, was always, in the straight line of

Chaucer, Ben Jonson, Dryden, Fielding, a preacher of man’s dignity
in his full appetite; and quite consciously, as a national genius, he
preached the doctrine of Christmas to his nation.

VIII
But you will say perhaps “Granted his amazing popularity—
granted, too, his right to assume on it—was it really deserved?” To
this question I oppose for the moment my opinion that, were I asked
to choose out of the story of English Literature a short list of the most
fecund authors, I should start with Chaucer, Marlowe, Shakespeare,
Donne, Dryden, Pope, Samuel Johnson, Burke, Gibbon,
Wordsworth, Coleridge, Shelley, Keats, Carlyle, Dickens, Browning.
If compelled to reduce the list to three, choosing the three most
lavishly endowed by God with imagination for their fellows’ good, I
almost think that among all God’s plenty I should choose, as pre-
eminent stars, Shakespeare, Burke and Dickens. Milton, of course,
will stand apart always, a solitary star: and Chaucer for his amazing
invention, less even for what he did than for that he did it at all; Keats
for infinity of promise; and to exclude Scott seems almost an outrage
on human kindness. Yet if it come to the mere wonder-work of
genius—the creation of men and women, on a page of paper, who
are actually more real to us than our daily acquaintances, as
companionable in a crowd as even our best selected friends, as
individual as the most eccentric we know, yet as universal as
humanity itself, I do not see what English writer we can choose to
put second to Shakespeare save Charles Dickens. I am talking of
sheer creative power, as I am thinking of Tasso’s proud saying that,
next to God himself, no one but the poet deserves the name of
Creator. You feel of Dickens as of Shakespeare that anything may
happen: because it is not with them as with other authors: it is not
they who speak. Falstaff or Hamlet or Sam Weller or Mr. Micawber: it
is the god speaking:
Ἄνδρα μοι ἔννεπε, Μοῦσα.
They are as harps upon which the large wind plays: and as that is
illimitable there is no limit to their utterances. It was so with Charles
Dickens from the Sam Weller of his lost youth down to the last when,
in pain and under the shadow of death, he invented the Billickin.
In another lecture I propose to show you (if I can) that Dickens’
characters belong to a world of his own, rather than to this one. But if
he also created that world of his own, so much the grander creator
he!—As if he made men and women walk and talk in it, compelling
us to walk with them, and listen, and, above all, open our lungs and
laugh, suffer within the tremendous illusion, so much is he the more
potent magician! I also feel, in reading Shakespeare, or Dickens—I
would add Burke—as I feel with no fourth that I am dealing with a
scope of genius quite incalculable; that while it keeps me proud to
belong to their race and nation and to inherit their speech, it equally
keeps me diffident because, at any turn of the page may occur some
plenary surprise altogether beyond my power or scope of guessing.
With these three writers, as with no fourth, I have the sensation of a
certain faintness of enjoyment, of surrender, to be borne along as on
vast wings. Yet of Dickens, as of Shakespeare, the worst work can
be incredibly bad. Sorrier stuff could scarcely be written, could
scarcely conceivably have ever been written, than the whole part of
Speed in The Two Gentlemen of Verona unless it be the first chapter
of Martin Chuzzlewit. Yet in Martin Chuzzlewit you get Mrs. Gamp:
and I ask you, How much the poorer should we not all be, lacking
Mrs. Gamp?
I grant you that he has not yet passed—as he has not yet had
time to pass—the great test of a classical writer; which is that,
surviving the day’s popularity and its conditions, his work goes on
meaning more, under quite different conditions, to succeeding ages;
the great test which Shakespeare has passed more than once or
twice, remaining to-day, though quite differently, even more
significant than he was to his contemporaries. I grant—as in another
lecture I shall be at pains to show—that Dickens’ plots were usually
incredible, often monstrous. But he invented a world: he peopled it
with men and women for our joy: and my confidence in the diuturnity
of his fame rests even on more than this—on the experience that,
test this genius by whatever standard a critic may, he has by and by
to throw down his measure and admit that, while Dickens was
always a learner, out of his prodigality he could have at any moment
knocked the critic over by creating a new world with new and
delectable lasting characters to take it in charge.
 DICKENS (II)

I
I TAKE up my parable for a few words more upon the point at which I
broke off last week—the essential greatness of Dickens. For
greatness is a quality in some few men: indefinable perhaps, but yet
to be recognised; a certain thing and, by those of us who would
traffic with life or literature, not to be overlooked or denied save at
our soul’s peril, no matter what standard of artistry or of refined
scholarship we may set up: a quality in itself, moreover, and not any
addition or multiplication or raising of talent by industry. For an
illustration of the peril: I was reading, the other day, a history of
French Literature by the late M. Ferdinand Brunetière, and, coming
to the time of Alexandre Dumas the elder, I found that the historian,
disapproving of Dumas, has just left him out! Now that, I contend
(saving M. Brunetière’s eminence), is to write oneself down a
pedant, outside the catholic mind. Dumas lived a scandalous life,
wrote much execrable French, and encouraged—even employed—
some of his fellows to write worse. But the author of The Three
Musketeers, Le Vicomte de Bragelonne, La Reine Margot—Dumas,
“the seven-and-seventy times to be forgiven,” is not to be treated so,
by your leave: or only so, I repeat, at the critic’s peril. Or let me take
an Englishman—John Dryden. I suspect I shall not misrepresent or
misreport the attitude of many in this room towards Dryden when I
say that we find a world of slovenly sorry stuff in his dramas, and in
his poems a deal of wit and rhetoric which our later taste—such as it
is, good or bad, true or false—refuses to pass for poetry at all. Now if
I merely wanted to prove to you that Dryden at his best could write
finely, exquisitely—that out of the strong could come forth sweetness
—I could content myself with asking you to listen to these verses:
 No, no, poor suffering heart, no change endeavour,
Choose to sustain the smart, rather than leave her;
My ravish’d eyes behold such charms about her,
I can die with her, but not live without her
One tender sigh of her, to see me languish,
Will more than pay the price of my past anguish;
Beware, O cruel fair, how you smile on me,
’Twas a kind look of yours that has undone me.

Love has in store for me one happy minute,

And she will end my pain, who did begin it;
Then no day, void of bliss, of pleasure, leaving,
Ages shall slide away without perceiving:
Cupid shall guard the door, the more to please us,
And keep out Time and Death, when they would seize us:
Time and Death shall depart, and say in flying,
“Love has found out a way to live—by dying.”

There, obviously, is a virtuoso who commands his keyboard. But if I

were talking about Dryden to you for your soul’s good, I should
rather show you the man with all his imperfections on his head, then
turn and challenge you to deny his greatness. Why, you can scarcely
read a page, even of his prose—say, for choice, the opening of his
Essay of Dramatic Poesy—without recognising the tall fellow of his
hands, the giant among his peers,

ψυχἠ ...
... μακρὰ βιβᾶσα κατ’ ἀσφοδελὸν λειμῶνα,

“pacing with long stride the asphodel meadow” where, let us say,
Samuel Johnson walks, and Handel, and Hugo, nor are they
abashed to salute the very greatest—Dante, Michelangelo,
Shakespeare.
 I repeat, Gentlemen, that at all risk of appearing exorbitant I
should preach this to you for your souls’ good. For I do most
earnestly want you, before all else, to recognise this quality of
greatness and respond to it. In so far as, in your fleeting generation,
you give me your confidence and honour me (shall I say?) with a
personal hope for A or B or C, I would warn you of what I have
experimentally proved to be true of my contemporaries—that the
man is most fatally destined to be great himself who learns early to
enlarge his heart to the great masters; that those have steadily sunk
who cavilled at Caesar with Cassius, or over a cigarette chatted
admiringly of the rent which envious Casca made: that anyone with
an ear learns very surely to distinguish the murmur of the true bee
from the morose hum of the drone who is bringing no honey, nor
ever will, to the hive. In my own time of apprenticeship—say in the
’nineties—we were all occupied—after the French novelists—with
style: in seeking the right word, le mot juste, and with “art for art’s
sake,” etc. And we were serious enough, mind you. We cut
ourselves with knives. To-day, if I may diagnose your more youthful
sickness, you are occupied rather with lyricism, curious and
recondite sensations, appositions of unrelated facts with magenta-
coloured adjectives. The craze has spread to the shop-fronts, to
curtains, bedspreads, as the craze for Byronic collars spread in its
day: and “Hell is empty!” cried Ferdinand, plunging overboard: but
you can still find psycho-analysis rampant, with any amount of Birth
Control, among the geese on Golder’s Green. But if from this desk I
have preached incessantly on a text, it is this—that all spirit being
mutually attractive, as all matter is mutually attractive, is an ultimate
fact: and that therefore we shall grow the greater and better critics as
we surrender ourselves to the great writers and without detraction, at
least until we have, in modesty of mind, proved them: since, to apply
a word of Emerson’s:

Heartily know—
When half-gods go,
The gods arrive.
 II
So I broke off, or almost, upon a saying of Tasso’s—you may find
it repeated in Ben Jonson’s Timber, or Discoveries—that in this world
none deserves the name of Creator save God himself and the Poet
—by “Poet” meaning, of course, the great imaginative artist whether
working in restricted verse or in “that other harmony of prose.”
And you may be thinking—I don’t doubt, a number will be
thinking—that in a discourse on Dickens, I am putting the claim
altogether too high. I can feel your minds working, I think—working
to some such tune as this “Dickens and Virgil, now—Dickens and
Dante—Oh, heaven alive!”
You cannot say that I have shirked it—can you?
Well now, fair and softly! If I had said “Dickens and
Shakespeare,” it would have given you no such shock: and if I had
said “Shakespeare and Dante,” or “Dickens and Molière,” it would
have given you no shock at all. I am insisting, you understand, that
the first test of greatness in an imaginative writer is his power to
create: and I propose to begin with that which, if there should by any
chance happen to be a fool in this apparently representative
gathering, he will infallibly despise for the easiest thing in the world,
the creation of a fool. I beg to reassure him and, so far as I can,
restore his self-respect. It is about the hardest thing in the world, to
create a fool and laugh at him. It is a human, nay, even a Godlike
function (so and not by others shared) to laugh. Listen, before we go
further, to these stanzas on divine laughter:

Nay, ’tis a Godlike function; laugh thy fill!

Mirth comes to thee unsought:
Mirth sweeps before it like a flood the mill
Of languaged logic: thought
Hath not its source so high;
The will
Must let it by:
For, though the heavens are still,
 God sits upon His hill
And sees the shadows fly:
And if He laughs at fools, why should He not?
“Yet hath the fool a laugh”—Yea, of a sort;
God careth for the fools;
The chemic tools
Of laughter He hath given them, and some toys
Of sense, as ’twere a small retort
Wherein they may collect the joys
Of natural giggling, as becomes their state:
The fool is not inhuman, making sport
For such as would not gladly be without
That old familiar noise:
Since, though he laugh not, he can cachinnate—
This also is of God, we may not doubt.

Shakespeare, as we know, delighted in a fool, and revelled in

creating one. (I need hardly say that I am not talking of the
professionals, such as Touchstone or the Fool in Lear, who are
astute critics rather, ridiculing the folly of their betters by reflexion by
some odd facet of common sense, administering hellebore to minds
diseased and so in their function often reminding us of the Chorus in
Greek tragedy.) I mean, of course, the fool in his quiddity, such as
Dogberry, or Mr. Justice Shallow, or Cousin Abraham Slender.
Hearken to Dogberry:

Dog. Come hither, neighbour Seacole. God hath blessed

you with a good name: to be a well-favoured man is the gift of
fortune; but to write and read comes by nature.
Sec. Watch. Both which, master Constable—
Dog. You have: I knew it would be your answer. Well, for
your favour, sir, why, give God thanks, and make no boast of it;
and for your writing and reading, let that appear when there is no
need of such vanity.
Why, it might be an extract from the Geddes Report—or so much of
it as deals with Education!
And now to Slender, bidden in by sweet Anne Page to her
father’s dinner-table:

Anne. Will it please your worship to come in, sir?

Slender. No—I thank you, forsooth—heartily. I am very well.
Anne. The dinner attends you, sir.
Slender. I am not a-hungry, I thank you, forsooth....
Anne. I may not go in without your worship; they will not sit
till you come.
Slender. I’faith, I’ll eat nothing: I thank you as much as
though I did.
Anne. I pray you, sir, walk in.
Slender. I had rather walk here—I thank you. I bruised my
shin th’ other day with playing at sword and dagger with a
master of fence—three veneys for a dish of stewed prunes—
and, I with my ward defending my head, he shot my shin, and by
my troth, I cannot abide the smell of hot meat since.... Why do
your dogs bark so? Be there bears in town?
Anne. I think there are, sir. I heard them talked of.
Slender. I love the sport well, but I shall as soon quarrel at it
as any man in England.... You are afraid, if you see a bear loose,
are you not?
Anne. Ay, indeed, sir.
Slender. That’s meat and drink to me, now: I have seen
Sackerson loose—twenty times, and have taken him by the
chain.... But women, indeed, cannot abide ’em—they are very ill-
favoured rough things.
“Othello,” as Hartley Coleridge noted, “could not brag more
amorously”: and, as I wrote the other day in an introduction to The
Merry Wives, when Anne finally persuades him to walk before her
into the house, my fellow-editor and I had written (but afterwards in
cowardice erased) the stage-direction, He goes in: she follows with
her apron spread, as if driving a goose. Yes, truly, Slender is a goose
to say grace over and to be carved “as a dish fit for the gods.” “A
very potent piece of imbecility,” writes Hazlitt, and adds,
“Shakespeare is the only writer who was as great in describing
weakness as strength.”
Well, Jane Austen and Charles Dickens came after, to confirm
Hazlitt’s observation. No one seeks in Jane Austen for examples of
strength: and you will find none in Dickens to compare with Othello
or Cleopatra or (say) with Mr. Hardy’s Mayor of Casterbridge. But,
like Charles Lamb, Jane Austen and Dickens both “loved a fool”:
Jane Austen delicately, Dickens riotously: witness the one’s Miss
Bates, the other’s Mr. Toots. But observe, pray: the fools they delight
in are always—like Slender, like Miss Bates, like Mr. Toots—simple
fools, sincere fools, good at heart, good to live with, and in their way,
the salt of the earth. Miss Bates herself bears unconscious witness
to this in one of her wisest foolishest remarks—“It is such a
happiness when good people get together—and they always do.”
(Consoling thought for you and me at this very moment.) With the
fool who is also a humbug, a self-deceiver, Dickens could find no
patience in his heart; and this impatience of his you may test again
and again, always to find it—if I may say so with reverence—as
elementary as our Lord’s. I am not speaking of conscious, malignant
hypocrites—your Stiggins’s, Pecksniffs, Chadbands—on whom
Dickens waged war, his life through; but of the self-deceiving fool
whom we will agree with him in calling an “ass”—Uncle
Pumblechook, for instance, in Great Expectations, Mr. Sapsea in
Edwin Drood; on whom, or on whose kind, as he grew older, he
seems (most of all in his last book, whenever handling Mr. Sapsea)
to lose his artistic self-control, to savage them. But of kind fools,
lovable fools, good fools, God’s fools, Dickens’ heaven will open any
moment at call and rain you down half-a-dozen, all human, each
distinct. You may count half-a-dozen in his most undeservedly
misprised book, Little Dorrit, omitting Mr. F.’s Aunt: who is an
eccentric, rather, though an unforgettable one and has left her
unforgettable mark on the world in less than 200 words. She stands
apart: for the others, apart from foolishness, share but one gift in
common, a consanguinity (as it were) in flow of language or
determination of words to the mouth. Shall we select the vulgar,
breathless, good-natured widow, Flora Finching, ever recalling the
past (without so much pause as a comma’s) to her disillusioned first
lover?—

In times for ever fled Arthur pray excuse me Doyce and

Clennam (the name of his firm) infinitely more correct and
though unquestionably distant still ’tis distance lends
enchantment to the view, at least I don’t mean that and if I did I
suppose it would depend considerably on the nature of the view,
but I’m running on again and you put it all out of my head.
She glanced at him tenderly and resumed:
In times for ever fled I was going to say it would have
sounded strange indeed for Arthur Clennam—Doyce and
Clennam naturally quite different—to make apologies for coming
here at any time, but that is past and what is past can never be
recalled except in his own case as poor Mr. F. said when in
spirits Cucumber and therefore never ate it.... Papa is sitting
prosingly, breaking his new laid egg over the City article, exactly
like the Woodpecker Tapping, and need never know that you are
here....
The withered chaplet is then perished the column is
crumbled and the pyramid is standing upside down upon its
what’s-his-name call it not giddiness call it not weakness call it
not folly I must now retire into privacy and looking upon the
ashes of departed joys no more but taking the further liberty of
paying for the pastry which has formed the humble pretext for
our interview, will for ever say Adieu!
Mr. F’s Aunt who had eaten her pie with great solemnity ...
and who had been elaborating some grievous scheme of injury
 in her mind, took the present opportunity of addressing the
following sibyllic apostrophe to the relict of her late nephew:
“Bring him for’ard, and I’ll chuck him out o’ winder!”

III
Mr. Chesterton, selecting another fool from the gallery—Young
Mr. Guppy, of Bleak House—observes very wisely, that we may
disapprove of Mr. Guppy, but we recognise him as a creation flung
down like a miracle out of an upper sphere: we can pull him to
pieces, but we could not have put him together. And this (says he) is
the pessimists’ disadvantage in criticising any creation. Even in their
attacks on the Universe they are always under this depressing
disadvantage.
“A man looking at a hippopotamus may sometimes be tempted
to regard the hippopotamus as an enormous mistake: but he is also
bound to confess that a fortunate inferiority prevents him personally
from making such a mistake.”
Well, that is, of course, our difficulty in criticising all creative
genius. We tell ourselves how we could have suggested to
Shakespeare—or to Dickens—his doing this or that better than he
did; but the mischief is, we could not have done it at all. And in this
matter of Mr. Guppy, Mr. Chesterton continues: “Not one of us could
have invented Mr. Guppy. But even if we could have stolen Mr.
Guppy from Dickens, we have still to confront the fact that Dickens
would have been able to invent another quite inconceivable
character to take his place.”

IV
Here we get to it. I have instanced his fools only, and but a select
two or three of these for a test: but you may take, if you will, shrewd
men, miserly men, ruffians, doctors, proctors, prisoners,
schoolmasters, coachmen, licensed victuallers, teetotallers, thieves,
monthly nurses—whatever the choice be, Dickens will shake them
out of his sleeve to populate a world for us. For, like Balzac, he has a
world of his own and can at call dispense to us of its abundance.
What sort of a world is it out of which Dickens so enriches ours?
Well, to begin with, it is a crowded world, a world that in his
imagination positively teems with folk going, coming, hurrying: of
innumerable streets where you may knock in (and welcome) at any
chance door to find the house in accumulated misery, poverty, woe,
or else in a disorder of sausages and squalling children, with a
henpecked husband at one end of the table, a bowl of punch in the
middle, and at the other end a mortuary woman whose business in
life is to make a burden of life to all who live near her and would
have her cheerful. (There was never such a man as Dickens for
depicting the blight induced by one ill-tempered person—usually a
woman—upon a convivial gathering.) The henpecked husband
dispensing the punch is, likely as not, a city clerk contriving a double
debt to pay, a slave during office hours, bound to a usurious master:
a sort of fairy—a Puck, a Mr. Wemmick, as soon as he sheds his
office-coat and makes for somewhere in the uncertain gaslight of the
suburbs, “following darkness like a dream.”
Yes, this world is of the streets; in which Dickens was bred and
from which he drew the miseries and consolations of his boyhood. A
world “full of folk,” but not, like Piers Plowman’s, a “field full of folk.”
His understanding of England is in many ways as deep as
Shakespeare’s; but it is all, or almost all, of the urban England which
in his day had already begun to kill the rural. I ask you to consider
any average drawing of Phiz’s; the number of figures crowded into a
little room, the many absurd things all happening at once, and you
will understand why Phiz was Dickens’ favourite illustrator. A
crowded world: an urban world, largely a middle-class and lower-
class London world—what else could we expect as outcome of a
boyhood spent in poverty and in London? Of London his knowledge
is indeed, like Sam Weller’s, “extensive and peculiar”: with a
background or distance of the lower Thames, black wharves peopled
by waterside loafers or sinister fishers in tides they watch for horrible
traffic; rotting piles such as caught and held the corpse of Quilp.
Some sentiment, indeed, up Twickenham-way: a handful of flowers,
taken from the breast and dropped at the river’s brink, to be floated
down, pale and unreal, in the moonlight; “and thus do greater things
that once were in our breasts and near our hearts, flow from us to
the eternal seas.” But before they reach the eternal seas they must
pass Westminster Bridge whence an inspired dalesman saw the City
wearing the beauty of dawn as a garment.
Ships, towers, domes, theatres and temples ... and Waterloo
Bridge, Hood’s dark arch of tragedy; and London Bridge, hymned of
old by Dunbar. Dickens’ bridge is the old Iron one by Hungerford,
and under it the Thames runs down to ghastly flats, convict-haunted,
below Woolwich.
Shakespeare knew his London, his Eastcheap, its taverns. But
when you think of Shakespeare you think (I will challenge you) rather
of rural England, of Avon, of Arden, of native wood-notes wild. I hold
it doubtful that Falstaff on his death-bed babbled o’ green fields: but I
will take oath that when he got down to Gloucestershire he smelt the
air like a colt or a boy out of school. And Justice Shallow is there—
always there!

Silence. This Sir John, cousin, that comes hither anon about
soldiers?
Shallow. The same Sir John, the very same. I saw him break
Skogan’s head at the court-gate, when a’ was a crack not thus
high: and the very same day did I fight with one Sampson
Stockfish, a fruiterer, behind Gray’s Inn. Jesu, Jesu, the mad
days I have spent! and to see how many of my old acquaintance
are dead!
Silence. We shall all follow, cousin.
Shallow. Certain, ’tis certain; very sure, very sure: death, as
the Psalmist saith, is certain to all; all shall die. How a good yoke
of bullocks at Stamford fair?