Combining a regression model with a multivariate Markov chain in a forecasting problem
B Damásio, J Nicolau - Statistics & Probability Letters, 2014 - Elsevier
This paper proposes a new concept: the usage of Multivariate Markov Chains (MMC) as
covariates. Our approach is based on the observation that we can treat possible categorical
(or discrete) regressors, whose values are unknown in the forecast period, as an MMC in
order to improve the forecast error of a certain dependent variable. Hence, we take
advantage of the information about the past state interactions between the MMC categories
to forecast the categorical (or discrete) regressors and improve the forecast of the actual …
covariates. Our approach is based on the observation that we can treat possible categorical
(or discrete) regressors, whose values are unknown in the forecast period, as an MMC in
order to improve the forecast error of a certain dependent variable. Hence, we take
advantage of the information about the past state interactions between the MMC categories
to forecast the categorical (or discrete) regressors and improve the forecast of the actual …
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