Stochastic simulation of bivariate gamma distribution: a frequency-factor based approach

Abstract

A frequency-factor based approach for stochastic simulation of bivariate gamma distribution is proposed. The approach involves generation of bivariate normal samples with a correlation coefficient consistent with the correlation coefficient of the corresponding bivariate gamma samples. Then the bivariate normal samples are transformed to bivariate gamma samples using the well-known general equation of hydrological frequency analysis. We demonstrate that the proposed bivariate gamma simulation approach is capable of generating random sample pairs which not only have the desired marginal densities of component random variables but also their correlation coefficient. Scatter plots of simulated bivariate sample pairs also exhibit appropriate linear patterns (dependence structure) that are commonly observed in environmental and hydrological applications. Caution should also be exercised when specifying combinations of coefficients of skewness and the correlation coefficient for bivariate gamma simulation.