Type: Package
Title: Certainty Equivalent
Version: 1.0.0
Description: Compute the certainty equivalents and premium risks as tools for risk-efficiency analysis. For more technical information, please refer to: Hardaker, Richardson, Lien, & Schumann (2004) <doi:10.1111/j.1467-8489.2004.00239.x>, and Richardson, & Outlaw (2008) <doi:10.2495/RISK080231>.
License: MIT + file LICENSE
Encoding: UTF-8
LazyData: true
Imports: dplyr, tidyr, RColorBrewer, stats, base
RoxygenNote: 6.1.1
Suggests: knitr, rmarkdown
VignetteBuilder: knitr
NeedsCompilation: no
Packaged: 2019-06-14 14:01:42 UTC; Ariel
Author: Ariel Soto-Caro ORCID iD [aut, cre]
Maintainer: Ariel Soto-Caro <arielsotocaro@gmail.com>
Repository: CRAN
Date/Publication: 2019-06-14 14:40:03 UTC

Adjusted Risk Aversion Coefficient (RACa)

Description

Adjusted Risk Aversion Coefficient (RACa)

Usage

RACa(rac, data)

Arguments

rac

An scalar with the value of the relative RAC

data

Dataset to weight the RAC

Value

This function create an adjustment to the relative risk aversion coefficient, following Hardaker et al (2004).

Customized Legend for CE and RP plots.

Description

Customized Legend for CE and RP plots.

Usage

add_legend(...)

Arguments

...

free

Certainty Equivalent Function for Negative Exponential Function

Description

Certainty Equivalent Function for Negative Exponential Function

Usage

ce_en(profit, rac, weight = 0)

Arguments

profit

data.frame with profit values

rac

scalar of RAC value

weight

original wealth

Value

Scalar with the CE value

Certainty Equivalent Computation using Power Utility Function

Description

Certainty Equivalent Computation using Power Utility Function

Usage

ce_epnegative(data, rac_ini, rac_fin, weight = 0)

Arguments

data

data.frame with profit values

rac_ini

Initial value for the RAC sequence

rac_fin

Final value for the RAC sequence

weight

Original wealth

Value

Generate three objects: A table with the CEs, a vector of risk aversion coefficients RAC, and a plot to compare the CEs.

Certainty Equivalent Function with Power Utility Function

Description

Certainty Equivalent Function with Power Utility Function

Usage

ce_p(profit, rac, weight = 0)

Arguments

profit

data.frame with profit values

rac

scalar of RAC value

weight

original wealth

Value

Scalar with the CE value

Certainty Equivalent Computation using Power Utility Function

Description

Certainty Equivalent Computation using Power Utility Function

Usage

ce_power(data, rac_ini, rac_fin, weight = 0)

Arguments

data

data.frame with profit values

rac_ini

Initial value for the RAC sequence

rac_fin

Final value for the RAC sequence

weight

Original wealth

Value

Generate three objects: A table with the CEs, a vector of risk aversion coefficients RAC, and a plot to compare the CEs.

Certainty equivalent computation

Description

Certainty equivalent computation

Usage

certainty(data, ival, fval, utility, wealth = 0)

Arguments

data

data.set with profit for each treatment/project. Each column is a treatment and each row a different profit observation.

ival

The initial value for the RAC vector to employ (scalar).

fval

The final value for the RAC vector to employ (scalar).

utility

Indicator of utility function: "ExpNeg" for the Exponential Negative utility, and "Power" for the Power utility function.

wealth

The initial agent wealth. By default is zero.

Details

This function computes the certainty equivalent values using profit as inputs. Works with data.frames with 3 or more observations. Consider each column as a different treatment or project.

Value

This function produces three objects: CE_values is a table with treatment by columns and certainty values by row; RAC is a vector with the absolute risk aversion coefficients (ARAC) if the Power utility function was implemented, or the relative risk aversion coefficient (RRAC) if the Exponential Negative utility function was implemented. The length of this vector is the same as the number of profit observations in the original dataset; and, CE_plot is a graph using plot function, to compare the different CEs computed.

References

Hardaker, J.B., Richardson, J.W., Lien, G., & Schumann, K.D. (2004). Stochastic efficiency analysis with risk aversion bounds: a simplified approach. Australian Journal of Agricultural and Resource Economics, 48(2), 253-270.

Examples

## Example 1. Using profit data from ceRtainty package
data(profitSWG)

# Storing CE values using Power utility function
c1 <- certainty(data    = profitSWG,
                ival    = .5,
                fval    = 4,
                utility = "Power")
c1$CE_values # Table with CE values
c1$RAC       # RAC vector used in CE computation
c1$CE_plot() # Invoking the CE plot

# To use the ExpNeg function, it is required the RRAC (ARAC/wealth)
# so we can compute the mean value among all profit in the dataset.

# Mean value among all profit value
mean(sapply(profitSWG,mean)) # 5081.844

# Storing CE values using Power utility function
c1 <- certainty(data    = profitSWG,
                ival    = .5/5082,
                fval    = 4/5082,
                utility = "ExpNeg")

c1$CE_values # Table with CE values
c1$RAC       # RAC vector used in CE computation
c1$CE_plot() # Invoking the CE plot

## Example 2. Using the example values of Hardaker et al. (2004)
dt <- data.frame(treatment=c(100,125,135,142,147,150,153,158,163,175,195))
# Storing CE values using Power utility function. Hardaker use an
# unique RAC value (0.005)
c2 <- certainty(data    = dt,
                ival    = .005,
                fval    = .005,
                utility = "Power")
# or
c2 <- certainty(data    = dt,
                ival    = .005,
                fval    = .005,
                utility = "ExpNeg")

c2$CE_values
c2$RAC
c2$CE_plot()

Plot for CE using Exponential Negative Utility Function

Description

Plot for CE using Exponential Negative Utility Function

Usage

plot_ce_en(data, rac = 0, rac_ini = 0, rac_fin = 1, rac_len = 10)

Arguments

data

Data set with CE already computed

rac

Scalar with the RAC to use in the CE computation. When the analysis consider only one value of RAC

rac_ini

Vector of the RAC to use in the CE computation. When the analysis consider a sequence of RAC values

rac_fin

Final value for the RAC vector

rac_len

RAC vector length

Value

Plot of CE to compare treatments/projects

Plot for CE using Power Utility Function

Description

Plot for CE using Power Utility Function

Usage

plot_ce_power(data, rac = 0, rac_ini = 0, rac_fin = 1,
  rac_len = 10)

Arguments

data

Data set with CE already computed

rac

Scalar with the RAC to use in the CE computation. When the analysis consider only one value of RAC

rac_ini

Vector of the RAC to use in the CE computation. When the analysis consider a sequence of RAC values

rac_fin

Final value for the RAC vector

rac_len

RAC vector length

Value

Plot of CE to compare treatments/projects

Plot of the Risk Premium values using Exponential Negative Utility Function

Description

Plot of the Risk Premium values using Exponential Negative Utility Function

Usage

plot_risk_premium_en(data, rac_ini, rac_fin, rac_len)

Arguments

data

data.frame of CE computed by Exponential Negative function

rac_ini

Initial RAC values used in the CE computation

rac_fin

Final RAC values used in the CE computation

rac_len

Length of the RAC vector used in the CE computation

Value

Plot object

Plot of the Risk Premium values using Exponential Negative Utility Function

Description

Plot of the Risk Premium values using Exponential Negative Utility Function

Usage

plot_risk_premium_p(data, rac_ini, rac_fin, rac_len)

Arguments

data

data.frame of CE computed by Power Utility function

rac_ini

Initial RAC values used in the CE computation

rac_fin

Final RAC values used in the CE computation

rac_len

Length of the RAC vector used in the CE computation

Value

plot object

Risk Premium computation

Description

Risk Premium computation

Usage

premium(tbase, ce_data, rac, utility)

Arguments

tbase

Name of the base treatment/project

ce_data

data.frame with CE values previously computed

rac

Vector with RAC sequence used in the CE computation

utility

The utility function: "ExpNeg" if CE it was computed using Exponential Negative utility function. "Power" if the utility function was Power

Details

This function computes the risk premium values, regarding a project or treatment arbitrarily chosen by the user, using a CEs dataset (a 'certainty' object) already computed.

Value

Generates three objects: A data.frame with the total values of the premium risks; a data.frame with the percentage of difference with respect the base treatment; and a plot with the treatments' premium risk.

Examples

## Example using profit dataset
data(profitSWG)

# First, compute the CE values
c1 <- certainty(data = profitSWG,ival = .5,fval = 4,utility = "Power")

ce_values <- c1$CE_values  # CE table
ce_rac <- c1$RAC           # RAC vector

# The Risk premium values respect to Serenade treatment
rp <- premium(tbase = "serenade", ce_data = ce_values,rac = ce_rac, utility = "Power")

rp$PremiumRisk       # absolute values
rp$PremiumRiskPer100 # values in percentage
rp$RP_plot()         # plot

Profit SWG

Description

The data come from strawberry trials experiments in Florida, USA, performed by the Gulf Coast Research and Education Center, University of Florida.

Usage

data(profitSWG)

Format

A data frame with 8 rows of profit and 4 pesticide treatments:

control

Control (non-treated case), in US dollars

fracture

Fracture treatment, in US dollars

milstop

Milstop treatment, in US dollars

serenade

Serenade Optimum treatment, in US dollars

Details

Correspond to the profit for three pesticide treatments plus the case without treatment. Four observations for each season, 2014-15 and 2015-16.

Source

Soto-Caro, Wu, Guan (2019). "Evaluating Pest Management Strategies: A Robust Method and Its Application to Strawberry Disease Management". AAEA 2019 Conference.

References

Soto-Caro, Wu, Guan (2019). "Evaluating Pest Management Strategies: A Robust Method and Its Application to Strawberry Disease Management". AAEA 2019 Conference.

Examples

data(profitSWG)
summary(profitSWG)

RAC Generator

Description

RAC Generator

Usage

rac_generator(data, ini, fin)

Arguments

data

data.frame object to weight the RAC

ini

The initial value of the risk aversion coefficient (RAC) sequence

fin

The final value of the risk aversion coefficient (RAC) sequence

Details

Create a vector with the adjusted relative risk aversion coefficients to be used in the CE computation, under Power utility function.

Value

Produce a single vector of adjusted RACs.

Examples

# Example
data("profitSWG")
rac_generator(data = profitSWG$control, ini = 0.5, fin = 4.0)

Define the length of the Risk Aversion Coefficient, RAC.

Description

Define the length of the Risk Aversion Coefficient, RAC.

Usage

rac_len(ini, fin, data)

Arguments

ini

The initial value of the RAC sequence

fin

The final value of the RAC sequence

data

Original data, could be a vector or a matrix

Value

Two elements are generated: "r" is the RAC vector, and "length" is a scalar with the number of elements on RAC vector.

RAC Sequence generator

Description

RAC Sequence generator

Usage

rac_seq(ini, fin, len)

Arguments

ini

The initial value for the RAC

fin

The final value for the RAC

len

The Length of the vector to creates

Value

Vector of RACs