# mages' blog

## How cold is it? A Bayesian attempt to measure temperature

It is getting colder in London, yet it is still quite mild considering that it is late November. Well, indoors it still feels like 20°C (68°F) to me, but I have been told last week that I should switch on the heating.

Luckily I found an old thermometer to check. The thermometer showed 18°C. Is it really below 20°C?

The thermometer is quite old and I'm not sure that is works properly anymore. So, what shall I do now? Perhaps I should consider that both measurements are uncertain and try to combine them.

I believe that I can sense the temperature within ±3°C, while I think that the thermometer still works within ±2°C. Assuming that both measurements follow a Gaussian (Normal) distribution, with the uncertainties given as standard deviations, I can use Bayes' theorem to combine my hypothesis with the data. The posterior distribution will be Gaussian again with conjugated hyper-parameters:
$\mu=\left.\left(\frac{\mu_0}{\sigma_0^2} + \frac{\sum_{i=1}^n x_i}{s^2}\right)\right/\left(\frac{1}{\sigma_0^2} + \frac{n}{s^2}\right) \\ \sigma^2=\left(\frac{1}{\sigma_0^2} + \frac{n}{s^2}\right)^{-1}$With $$K := \frac{n\sigma_0^2}{s^2+n\sigma_0^2}$$ this simplifies to:
$\mu = K\, \bar{x} + (1 - K)\, \mu_0 \mbox{, with } \bar{x}=\frac{1}{n}\sum_{i=1}^n x_i\\ \sigma = s \,\sqrt{K/n}$In my case I have: $$n=1,\; x_1=18^{\circ}C,\; s=2^{\circ}C,\; \mu_0=20^{\circ}C,\; \sigma_0=3^{\circ}C$$.

Hence, the posterior distribution has parameters $$\mu=18.6^{\circ}C$$ and $$\sigma=1.7^{\circ}C$$. Thus, my best guess would be that is actually a little colder than I thought. One could argue that the probability that is below 20° is 80%.

Over the last five days my perception of the temperature didn't change, neither did the weather forecast, but the measurements showed: 18°C, 19°C, 17.5°C, 18°C, 18.5°C.

With that information the parameters update to $$\mu=18.3^{\circ}C$$ and $$\sigma=0.9^{\circ}C$$. I can't deny it any longer it has got colder. The probability that is below 20°C is now at 97% and the heating is on.

Without any prior knowledge I may have used a t-test to check the measurements. But here I believe that I have information about the thermometer and my own temperature sensing abilities which I don't want to ignore.

### Session Info

R version 3.1.2 (2014-10-31)
Platform: x86_64-apple-darwin13.4.0 (64-bit)

locale:
[1] en_GB.UTF-8/en_GB.UTF-8/en_GB.UTF-8/C/en_GB.UTF-8/en_GB.UTF-8

attached base packages:
[1] stats     graphics  grDevices utils     datasets  methods
[7] base

other attached packages:
[1] BayesianFirstAid_0.1 rjags_3-14           coda_0.16-1
[4] lattice_0.20-29

loaded via a namespace (and not attached):
[1] grid_3.1.2    MASS_7.3-35   mnormt_1.5-1  stringr_0.6.2

## First steps with ChainLadder: Import triangle from Excel into R

Taking the first step is often the hardest: getting data from Excel into R.

Suppose you would like to use the ChainLadder package to forecast future claims payments for a run-off triangle that you have stored in Excel.

How do you get the triangle into R and execute a reserving function, such as MackChainLadder?

Well, there are many ways to do this and the ChainLadder package vignette, as well as the R manual on Data Import/Export has all of the details, but here is a quick and dirty solution using a CSV-file.

Open a new Excel workbook and copy your triangle into cell A1, with the first column being the accident or origin period and the first row describing the development period or age. You find an example CSV-file on GitHub.

Make sure that your triangle has no formatting, such a commas to separate thousands, as Excel will save those cell as characters. Now open R and go through the following commands:

# The first command will open a window and
myCSVfile <- file.choose()
# use read.csv2 if semicolons are used as a separator
# likely to be the case if you are in continental Europe

dat # to see your data

AY   X1    X2    X3    X4    X5    X6    X7    X8    X9   X10
1  1981 5012  8269 10907 11805 13539 16181 18009 18608 18662 18834
2  1982  106  4285  5396 10666 13782 15599 15496 16169 16704    NA
3  1983 3410  8992 13873 16141 18735 22214 22863 23466    NA    NA
4  1984 5655 11555 15766 21266 23425 26083 27067    NA    NA    NA
5  1985 1092  9565 15836 22169 25955 26180    NA    NA    NA    NA
6  1986 1513  6445 11702 12935 15852    NA    NA    NA    NA    NA
7  1987  557  4020 10946 12314    NA    NA    NA    NA    NA    NA
8  1988 1351  6947 13112    NA    NA    NA    NA    NA    NA    NA
9  1989 3133  5395    NA    NA    NA    NA    NA    NA    NA    NA
10 1990 2063    NA    NA    NA    NA    NA    NA    NA    NA    NA

Ok, the data is in R, but now you have to convert it into a triangle. A triangle is basically a matrix with extra attributes. To do this execute the following steps.

# Load the ChainLadder package
# Ignore first column which holds accident year information
tri <- dat[,-1]
# Convert to matrix
tri <- as.matrix(tri)
dimnames(tri) <- list(origin=dat[,1], dev=1:ncol(tri))
# Convert into a triangle class
tri <- as.triangle(tri)
tri
dev
origin    1     2     3     4     5     6     7     8     9    10
1981 5012  8269 10907 11805 13539 16181 18009 18608 18662 18834
1982  106  4285  5396 10666 13782 15599 15496 16169 16704    NA
1983 3410  8992 13873 16141 18735 22214 22863 23466    NA    NA
1984 5655 11555 15766 21266 23425 26083 27067    NA    NA    NA
1985 1092  9565 15836 22169 25955 26180    NA    NA    NA    NA
1986 1513  6445 11702 12935 15852    NA    NA    NA    NA    NA
1987  557  4020 10946 12314    NA    NA    NA    NA    NA    NA
1988 1351  6947 13112    NA    NA    NA    NA    NA    NA    NA
1989 3133  5395    NA    NA    NA    NA    NA    NA    NA    NA
1990 2063    NA    NA    NA    NA    NA    NA    NA    NA    NA

With those preparations done you can execute the MackChainLadder function:

M <- MackChainLadder(tri, est.sigma = "Mack")
M
Latest Dev.To.Date Ultimate   IBNR Mack.S.E CV(IBNR)
1981 18,834       1.000   18,834      0        0      NaN
1982 16,704       0.991   16,858    154      206    1.339
1983 23,466       0.974   24,083    617      623    1.010
1984 27,067       0.943   28,703  1,636      747    0.457
1985 26,180       0.905   28,927  2,747    1,469    0.535
1986 15,852       0.813   19,501  3,649    2,002    0.549
1987 12,314       0.694   17,749  5,435    2,209    0.406
1988 13,112       0.546   24,019 10,907    5,358    0.491
1989  5,395       0.336   16,045 10,650    6,333    0.595
1990  2,063       0.112   18,402 16,339   24,566    1.503

Totals
Latest:    160,987.00
Dev:             0.76
Ultimate:  213,122.23
IBNR:       52,135.23
Mack S.E.:  26,909.01
CV(IBNR):        0.52


To copy the full triangle back into Excel you can use the clipboard:
write.table(M\$FullTriangle, file="clipboard", sep="\t").
Go back to Excel and hit <Ctrl> + V on your keyboard to paste the data into R.

For more details see the package vignette and Dan's post on pasting triangles from Excel into R via the clipboard.

If you are after a thorough overview of R in insurance take a look at the book Computational Actuarial Science with R.

Finally, join the Special Interest Group on using R in actuarial science and insurance to share your questions and answers.

### Session Info

R version 3.1.2 (2014-10-31)
Platform: x86_64-apple-darwin13.4.0 (64-bit)

locale:
[1] en_GB.UTF-8/en_GB.UTF-8/en_GB.UTF-8/C/en_GB.UTF-8/en_GB.UTF-8

attached base packages:
[1] stats     graphics  grDevices utils     datasets  methods
[7] base

other attached packages:
[4] zoo_1.7-11        car_2.0-21        Matrix_1.1-4

loaded via a namespace (and not attached):
[1] acepack_1.3-3.3     actuar_1.1-6        cluster_1.15.3
[4] foreign_0.8-61      Formula_1.1-2       grid_3.1.2
[7] Hmisc_3.14-5        lattice_0.20-29     latticeExtra_0.6-26
[10] MASS_7.3-35         nnet_7.3-8          plyr_1.8.1
[13] RColorBrewer_1.0-5  Rcpp_0.11.3         reshape2_1.4
[16] rpart_4.1-8         sandwich_2.3-2      splines_3.1.2
[19] statmod_1.4.20      stringr_0.6.2       survival_2.37-7
[22] tools_3.1.2         tweedie_2.2.1 

## Unknown pleasures

Have I missed unknown pleasures in Python by focusing on R?

A comment on my blog post of last week suggested just that. Reason enough to explore Python a little. Learning another computer language is like learning another human language - it takes time. Often it is helpful to start by translating from the new language back into the old one.

I found a Python script by Ludwig Schwardt that creates a plot like this:

It is only a small Python script, but it illustrated how to:
• use conditional statements
• write functions
• deal with arrays
• write loops
• create plots
• save output into a PDF file
Here is my translation into R, which actually generated the plot above.

### Session Info

R version 3.1.2 (2014-10-31)
Platform: x86_64-apple-darwin13.4.0 (64-bit)

locale:
[1] en_GB.UTF-8/en_GB.UTF-8/en_GB.UTF-8/C/en_GB.UTF-8/en_GB.UTF-8

attached base packages:
[1] stats     graphics  grDevices utils     datasets  methods
[7] base

other attached packages:
[1] signal_0.7-4 e1071_1.6-4

loaded via a namespace (and not attached):
[1] class_7.3-11 MASS_7.3-35  tools_3.1.2


## Phase plane analysis in R

The forthcoming R Journal has an interesting article about phaseR: An R Package for Phase Plane Analysis of Autonomous ODE Systems by Michael J. Grayling. The package has some nice functions to analysis one and two dimensional dynamical systems.

As an example I use here the FitzHugh-Nagumo system introduced earlier:
\begin{align}
\dot{v}=&2 (w + v - \frac{1}{3}v^3) + I_0 \\
\dot{w}=&\frac{1}{2}(1 - v - w)\\
\end{align}
The FitzHugh-Nagumo system is a simplification of the Hodgkin-Huxley model of spike generation in squid giant axon. Here $$I_0$$ is a bifurcation parameter. As I decrease $$I_0$$ from 0 the system dynamics change (Hopf-bifurcation): a stable equilibrium solution transform into a limit cycle.

Following Michael's paper, I can use phaseR to plot the velocity field, add nullclines and plot trajectories from different starting points.

Here I plot the FitzHugh-Nagumo system for four different parameters of $$I_0$$ and three different initial starting values. The blue line show the nullcline of $$w$$ i.e. $$\dot{w}=0$$, while the red line shows the nullcline of $$v$$. For $$I_0=-2$$ I can observe the limit cycle.

Yet, I was a little surprised that the paper didn't make any references to the XPPAUT software by Bard Ermentrout, which has been around for many years as tool to analyse dynamical systems.

The GUI to the software itself gives many more options to analyse dynamical systems, including an interface to the popular bifurcation program AUTO. A good tutorial with the FitzHugh-Nagumo model was given by Mathieu Desroches at the ICS summer school 2012.

Of course I could use XPPAUT as a pure integration engine from R as well:

Considering that R started as a tool for statisticians it has made a remarkable journey; here competing with more traditional engineering tools like Matlab with MatCont or special software like XPPAUT. If someday, someone would find the time and motivation to write an interface to AUTO then R would indeed be a very good environment for the analysis of dynamical systems.

### Session Info

R version 3.1.2 (2014-10-31)
Platform: x86_64-apple-darwin13.4.0 (64-bit)

locale:
[1] en_GB.UTF-8/en_GB.UTF-8/en_GB.UTF-8/C/en_GB.UTF-8/en_GB.UTF-8

attached base packages:
[1] stats     graphics  grDevices utils     datasets  methods
[7] base

other attached packages:
[1] phaseR_1.3     deSolve_1.10-9

loaded via a namespace (and not attached):
[1] tools_3.1.2