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4QA3 F12 Week 5 Lecture Notes

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Unformatted text preview: verage Method o  Easily understood o  Easily computed o  Provides stable forecasts ●  Disadvantages of Moving Average Method o  Requires saving all past n data points o  Lags behind a trend o  Ignores complex relationships in data 4QA3 F12 19 ●  A type of weighted moving average that applies declining weights to the past data. New Forecast = α most recent observation + 1 − α last forecast ( )( )( ) Or ( )( New Forecast = last forecast − α last forecast error ) where 0 < α ≤ 1 and generally is small for stability of forecasts (around .1 to .2). ●  Mathematically: 4QA3 F12 ( ) Ft = α Dt −1 + 1 − α Ft −1 Ft = Ft −1 − α et −1 20 ( ) Ft = α Dt −1 + 1 − α Ft −1 ( ) Ft −1 = α Dt −2 + 1 − α Ft −2 ( ) ( ) 2 Ft = α Dt −1 + α 1 − α Dt −2 + 1 − α Ft −2 ( ) Ft −2 = α Dt −3 + 1 − α Ft −3 ... ∞ (...
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