Solution

ID: past-exam-of-the-probability-statistics-and-options-ii-course-of-the-university-of-oxford/2011/o/o4/c/solution

The generalized likelihood ratio compares the constrained maximum from part (b) with the unrestricted maximum from part (a). Taking minus twice its logarithm gives
The unrestricted model has free parameters; the independence model has . Thus the asymptotic null distribution is , with four degrees of freedom. The supplied value gives
Therefore reject independence at the 5% level, but not at the 1% level. There is evidence of an association between the two classifications. The fitted expected counts are all about nine or larger, so the usual chi-squared approximation has no very small expected cells here.

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