Combining two noisy estimates optimally
Asked at Two Sigma
Two independent research groups each produce an unbiased estimate of the same fair value : group one gives with variance , group two gives with variance . You will combine them linearly as .
What weight minimizes the variance of , and what is the resulting variance? Evaluate for , .
Show a hint
Any keeps unbiased, so just minimize over .
Your answer
This one is open-ended. Work it through, then check your reasoning against the full solution.