Cross Validated
2024-06-25 10:04 UTC
Score 15.0
AI-113-20240625-social-media-bebf3039
Full article
Suppose we have a stationary time series $x_{1}, x_{2}, ..., x_{T}$ . Goal is to forecast up to $T+h$ , i.e., forecast $x_{T+1}, x_{T+2}, ..., x_{T+h}$ . Forecasting methodology: Using econometric techniques one can try to fit a model, which describes the data generating process of $\{x\}_{t}$ (e.g., ARIMA or other model). Then, having estimated parameters of the model one can simulate using forward Monte Carlo technique many paths up to $T+h$ . Using simulated paths, one can construct an empirical PDF for each point in time in the future, i.e., $f_{T+1}(x), f_{T+2}(x), ..., f_{T+h}(x)$ . As a forecast for $x_{T+1}, x_{T+2}, ..., x_{T+h}$ , take mean of $f_{T+1}(x), f_{T+2}(x), ..., f_{T+h}(x)$ , respectively. Question: Is this kind of method acceptable or widely used for stationary process forecasting? What are the main problems and assumptions of this method? Also, I assume that forecasts will be the same as the current value, i.e., $E(x_{T+i}|x_T)=x_{t}$ for any $i$ . Is this assumption correct?