Optimal reconciliation with immutable forecasts

DOI10.1016/J.EJOR.2022.11.035MaRDI QIDQ6167535zbMATH OpenOpenAlexFDO

Authors Bohan Zhang, Yanfei Kang, Anastasios Panagiotelis, Feng Li

Publication date 10 July 2023

Published in European Journal of Operational Research (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2204.09231

zbMATH Keywords

forecastingconstrained optimizationunbiasednesshierarchical time seriesonline retail

Mathematics Subject Classification ID

Operations research and management science (90Bxx)

Abstract: The practical importance of coherent forecasts in hierarchical forecasting has inspired many studies on forecast reconciliation. Under this approach, so-called base forecasts are produced for every series in the hierarchy and are subsequently adjusted to be coherent in a second reconciliation step. Reconciliation methods have been shown to improve forecast accuracy, but will, in general, adjust the base forecast of every series. However, in an operational context, it is sometimes necessary or beneficial to keep forecasts of some variables unchanged after forecast reconciliation. In this paper, we formulate reconciliation methodology that keeps forecasts of a pre-specified subset of variables unchanged or "immutable". In contrast to existing approaches, these immutable forecasts need not all come from the same level of a hierarchy, and our method can also be applied to grouped hierarchies. We prove that our approach preserves unbiasedness in base forecasts. Our method can also account for correlations between base forecasting errors and ensure non-negativity of forecasts. We also perform empirical experiments, including an application to sales of a large scale online retailer, to assess the impacts of our proposed methodology.

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Cited in

(1)

• Point and probabilistic forecast reconciliation for general linearly constrained multiple time series

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