Strange


Total Posts: 1561 
Joined: Jun 2004 


Here is a problem and, as usual, I am being stupid.
I am trying to predict an overnight interest rate in one of the emerging markets in several days (up to 5 weeks). There is a relatively large history of observations (say 56 thousand observations) and I found a few predictive models.
Model 1: reversion to the longterm mean  produces a forecast for time now + n
Model 2: shortterm microreversion produces forecast for tomorrow (now + 1)
Model 3: day of week seasonality  produces adjustment based on the day of the week
What I am trying to do now is merge these models into a single forecasting method. The problem is that (a) the models are not strictly independent and (b) I want to understand if I am getting an improvement (the base line is unchanged from todays rate).

“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.” 


tabris


Total Posts: 1262 
Joined: Feb 2005 


wouldn't you just use some form of ensemble learning to combine the forecast? 
Dilbert: Why does it seem as though I am the only honest guy on earth?
Dogbert: Your type tends not to reproduce. 

ronin


Total Posts: 468 
Joined: May 2006 


d Prediction = ShortTimeScale * (ShortTerm  Prediction) dt + dSeasonality + dW d ShortTerm = LongTimeScale * (LongTerm  ShortTerm) dt + dZ
?

"There is a SIX am?"  Arthur 


nikol


Total Posts: 749 
Joined: Jun 2005 


Minimize Sum of error normalized by combined error prediction ~ R2.
pred_i (i=1,2) depends on model parameters.
R21 ~ abs(pred1price)/err1 R22 ~ abs(pred2price)/err2
combined R2 ~ [(pred1price)^2+(pred2price)^2]/[err1^2+err2^2]
R2 behaves well, i.e. it roughly follows Chi2.
You also can apply inverseCDF transformations (it's also called PIT) and combine probabilities (using ML/NN?). Usually I check something like:
if 2*p1 \in [1,1] then (p1+p21) \in [1,1]
or something like...
PS. typos.. 


Zoho


Total Posts: 22 
Joined: Feb 2018 


Could Fernholz with his hedged strategy from "Statistics of statistical arbitrage" be of any help?



