## Gibbs Sampling by Example

In order to grasp a new technique it’s often useful to see how it is used in real-world examples. Here we will examine a particular implementation of a Gibbs sampler which pertains to a model we discussed in a previous series of articles.

### Re-Cap

As was discussed in the previous article, the Gibbs sampling algorithm is a Markov Chain Monte Carlo (MCMC) technique that can be used to simulate outcomes from a multivariate distribution.

As with all MCMC techniques, simulations are produced by generating a realisation of a random walk and recording the position of the walk at the end of consecutive time intervals. MCMC techniques are designed such that, no matter where it starts, the positions produced by a long enough walk will resemble a sample from the target distribution.

The Gibbs sampler produces a random walk by updating each coordinate associated with the multivariate distribution sequentially. Once each coordinate has been updated the new values are recorded and another iteration occurs.

The key to the Gibbs sampler is in how each of the coordinates are updated. In particular, updating a particular variable involves simulating an outcome from its conditional distribution, given the latest values of all the other variables.

The animation below illustrates how this process unfolds in the case of a bivariate Normal distribution.

Here you can see that the random walk moves around the space by first taking a horizontal step and then a vertical step.

In the animation I’ve also plotted the positions of the random walk on top of some bivariate Normal contours. One can see that after a large number of steps the distribution of the dots resembles the target distribution.

In this article we will show how Gibbs sampling can be applied to another more specialised problem.

### The Model

In the Incomplete Data series I introduced a model that could be used to describe the timing of individual claim payments made by an insurer.

From the data we made two observations regarding the timing of payments; payments occurred sporadically and eventually they ceased.

These phenomena were assumed to be caused by the state of each claim. In particular, we assumed that the claim could be in one of three states: an open state in which no payment occurs; a closed state, also with no payment; and an open state in which a payment does occur. In addition, it was assumed that if a claim closed it remained closed.

The probability of a claim moving from an open state to the closed state ( ) and, given it was open, giving rise to a payment ( ) were both assumed to be constant and applicable to all claims.

To understand more about the claim payment process, therefore, it’s useful to investigate what can be learned about the unknown factors in our model based on the observed data. In this case, the unknowns are the transition probability parameters ( and ) and if and when any of the claims closed.

As was discussed in the Incomplete Data series, this problem can be tackled by looking at the posterior distribution of the unknowns. Specifically, assuming a uniform prior on and , the posterior density takes the following form: Here, the event that a given claim is closed is represented by , represents the number of trailing periods with no payments that each claim remained open for, and and are the parameters we discussed previously.

The observed data is represented by the number of claims ( ), the number of periods in which payments occurred ( ), the number of periods prior to the last payment in which no payments occurred ( ), and the number of observed periods after the last payment ( ).

In this article we will use a Gibbs sampler to simulate from this distribution. However, as discussed in the previous article, to do this we need to know what each of the unknowns’ conditional distributions are.

### The Conditional Distributions

The purpose of this article isn’t to dwell on how we arrive at the conditional distribution of each unknown. After all, in your problem the posterior and conditional distributions will undoubtedly be different. However, as they are integral to performing Gibbs sampling it’s worth getting a feel for how you might derive them.

In this case you can get most of the way to deriving the conditional distributions by “inspection”. This means considering the posterior density as a function of each unknown and seeing whether it looks like any of the standard distributions you already know (see Wikipedia for a list of standard distributions).

For example, as a function of ( ) the posterior looks like: This density is of the same form as a beta distribution.

By a similar albeit more long-winded approach it’s possible to see that the conditional distributions of each of the unknowns take the form of the following standard distributions: As you can see the conditional distributions each take a standard form. The exception to this being –which is either a constant or follows a truncated Geomtric distribution–nevertheless it is still easy to simulate from.

With these conditional distributions, we have all that we need to implement a Gibbs sampler.

### The Gibbs Sampler

At this point it may be obvious to you how we would set up a Gibbs sampler using the conditional distributions above. However, I expect others might feel uncomfortable translating what we’ve discussed into an actual implementation.

With this in mind, below is the Gibbs sampler relevant to this article written in “pseudo-code”: Hence, in the programming language of your choice, one iteration of the Gibbs sampler involves: for each claim simulating whether it is closed or not (step 7); simulating how many periods each claim has been open for (step 9); simulating new parameter values for and (steps 12 and 13).

### Final Word

In this article we discussed a specialised example of a Gibbs sampling algorithm. In particular, we examined how to implement a Gibbs sampler for a model that could be used to explain the timing of payments on insurance claims.

I hope that by working through a real-world example applying Gibbs sampling to your problems will seem less daunting.

## Markov Chain Monte Carlo: The Gibbs Sampler

In the previous article we focused on understanding what Markov Chain Monte Carlo is and why it works. Here we look at Gibbs sampling, a Markov Chain Monte Carlo technique that can be directly applied to many modelling problems.

### Re-Cap

In the previous article we introduced Markov Chain Monte Carlo (MCMC) as a method for simulating outcomes from a model.

We saw that the key to this approach was in choosing a random walk that visited each outcome as frequently as the model suggested. By recording the position of the random walk at consecutive time intervals, we could generate a set of simulations that looked like a large sample from the model.

For example, a model might prescribe that two outcomes are possible, “A” and “B” say. In this case, if each outcome occurred with a probability of 50% then an appropriate random walk would transition between “A” and “B”, spending half of the time at each outcome.

Furthermore, by recording the positions of the walk we could get a large sample in which approximately half of the records would have outcome “A” and the other half outcome “B”.

Ultimately, we saw that a particular type of random walk was useful in this regard. In particular, we found that if the invariant distribution of a Markov Chain is equal to the modelled distribution, it would (aside from some unusual exceptions) visit each position with the desired long-run frequency.

The objective of the previous article was to ensure that we were comfortable with this key result, as it is the reason why all MCMC methods work. However, alone this simply presents us with a new problem:

How do I find a Markov Chain with invariant distribution equal to my modelled distribution?

Please note, understanding the previous article is important for understanding what is discussed here. As a result, you may find it helpful to re-read or skim the previous post.

### Narrowing Down our Search

After the last article, identifying the Markov Chain appropriate to your model may have felt like finding the proverbial needle in the haystack.

There is a whole world of possible Markov Chains out there and naively picking transition probabilities until we find the ones with the right invariant distribution is likely to end in frustration.

To make this search easier, MCMC techniques usually consider only the subset of Markov Chains that have a particular property. This property is known as “detailed balance”.

Detailed balance narrows our focus to those transition probabilities that, when applied to the modelled distribution, result in no net transfer of mass between each pair of outcomes.

This property is only subtly different to how we describe the effect of the transition probabilities on the invariant distribution. If you recall, the invariant distribution is the one for which the net transfer of mass is zero. Hence, detailed balance is similar but applies at a more granular level.

Clearly, as the total net transfer of mass between every outcome is the aggregate of the transfers between each pair of outcomes, it’s easy to see that if a distribution satisfies detailed balance it is also an invariant distribution.

Detailed balance is more formally defined by the following equation. In particular, for all “x” and “y” the following equation must be true: Here, the left-hand side represents the amount of mass that is transferred from outcome x to outcome y, while the right-hand side represents the amount transferred from y to x.

The Gibbs sampling algorithm is one MCMC technique that leverages detailed balance in order to produce a Markov Chain with the desired invariant distribution.

### The Gibbs Sampling Algorithm

Often MCMC is used when we want to simulate from a multivariate distribution. In these cases, when the conditional distribution of each variable given the other variables is known, Gibbs sampling can be used.

The Gibbs sampling algorithm is best understood by considering how it produces the next step in a Markov Chain. The animation below shows how this is done when Gibbs sampling is used to simulate from a bivariate Normal distribution.

In the animation the leading black dot represents the latest position of the random walk. In this case the random walk starts at the coordinate (0,0). To produce the next position, Gibbs sampling involves picking a new value for the x-coordinate and, afterwards, a new value for the y-coordinate.

As was alluded to above, the x-coordinate is sampled from the conditional distribution of x given the latest value of y and vice versa for the y-coordinate.

After each coordinate has been updated, the position is recorded as the next step in the walk. In this case, the second position of the walk is at (-0.19,-0.41).

To give you some confidence that the simulations generated by Gibbs sampling are appropriate, I’ve plotted the simulations on top of some bivariate Normal contours. As you can see, the spread of the black dots resembles the shape of the contours. Furthermore, for the reasons discussed in the last article, the resemblance becomes closer as the number of simulations increases.

This method of generating a Markov Chain may seem unfamiliar. In particular, you may be more familiar with having a set of transition probabilities that fully describe the probability of moving to each position given the current one.

In this case, however, we only know the transition probabilities corresponding to the sub-steps involved in updating each coordinate. Nevertheless, as the next step in the walk only depends on its current position, this process does generate a Markov Chain.

The key to the Gibbs sampler is that the updates to each coordinate satisfy detailed balance. To see this, let’s first consider the probability of moving from the coordinate (x, y) to (z, y), after an update to X: In words, the transition probability from (x, y) to (z, y), given an update to X, simply follows from the conditional distribution of X given Y. Furthermore, from the definition of conditional probability, this transition probability can be written as: Note that in the equation above and the ones below I write, for example, instead of . Both of these are supposed to denote the same thing, the probability that X is equal to x and Y is equal to y, however I’ve removed some bits to make the notation less clunky.

Inserting the modelled joint distribution and our final representation of the transition probabilities into both sides of the detailed balance equation we get:  Clearly both sides are equal, no matter what the value of x, y, or z.

While this shows that an update to the x-coordinate satisfies detailed balance, we can use this logic to show the same thing for the y-coordinate and/or given any number of variables.

Furthermore, as the update to each coordinate satisfies detailed balance, so does a Gibbs step. In particular, a Gibbs step is the result of updating every coordinate and because no mass is transferred while updating each coordinate, neither is any mass transferred once all of the coordinates are updated.

Thankfully, that’s all there is to Gibbs sampling.

### Final Word

In this article we discussed the Gibbs sampling algorithm, a Markov Chain Monte Carlo technique.

We saw that Gibbs sampling was particularly useful when we wanted to simulate from a multivariate distribution. In particular, the algorithm produces a new simulation by updating each modelled variable in turn and recording the outcome after all of the variables are updated.

The reason why Gibbs sampling works is that the updating process defines a Markov Chain for which the modelled distribution is the invariant distribution.