4QA3 F12 Week 5 Lecture Notes

Two common methods for forecasting stationary series

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Unformatted text preview: s, Ft is the forecast made for period t in period t – 1. 4QA3 F12 12 ●  The forecast error in period t, et , is the difference between the forecast for demand in period t and the actual value of demand in t. ●  For a multiple- step- ahead forecast: et = Ft - τ, t − Dt ●  For one- step- ahead forecast: et = Ft – Dt ●  Let e1, e2, …, en be the forecast errors observed over n periods. Three common measure of forecast accuracy during these n periods are: o  Mean Absolute Deviation (MAD) o  Mean Squared Error (MSE) o  Mean Absolute Percentage Error (MAPE) 4QA3 F12 13 1n MAD = ∑ ei n i=1 4QA3 F12 1n 2 MSE = ∑ ei n i=1 1n MAPE = ∑ ei Di × 100 n i=1 14 ●  A stationary time series has the form: Dt = µ + εt where μ is a constant and εt is a random variable with mean 0 and variance σ2. ●  Two common methods for forecasting stationary series are: Demand Patterns o  Moving Averages, o  Exponential Smoothing. 4QA3 F12 15 ●  A moving average of order...
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