Compute the correlation coefficient

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Reference no: EM131231693

1. Construct a vector of 100 increasing and regularly spaced numbers starting from .1 and ending at 20. Call it SIG2. Construct a vector of 21 increasing and regularly spaced numbers starting from -1.0 and ending at 1.0. Call it RHO.

2. For each entry σ2 of SIG2 and for each entry ρ of RHO:

Generate a sample of size N = 500 from the distribution of a bivariate normal vector Z = (X, Y ), where X ∼ N(0, 1), and Y ∼ N(0, σ²), and the correlation coefficient of X and Y is ρ (the S object you create to hold the values of the sample of Z's should be a 500×2 matrix);
Create a 500 × 2 matrix, call it EXPZ, with the exponentials of the entries of Z (the distributions of these columns are lognormal as defined in Problem 2.7);
Compute the correlation coefficient, call it ρ˜, of the two columns of EXPZ 3. Produce a scatterplot of all the points (σ², ρ˜) so obtained. Comment.

Reference no: EM131231693

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