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A comparison of temperature density forecasts from GARCH and atmospheric models

โœ Scribed by James W. Taylor; Roberto Buizza

Publisher
John Wiley and Sons
Year
2004
Tongue
English
Weight
249 KB
Volume
23
Category
Article
ISSN
0277-6693

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โœฆ Synopsis

Abstract

Density forecasts for weather variables are useful for the many industries exposed to weather risk. Weather ensemble predictions are generated from atmospheric models and consist of multiple future scenarios for a weather variable. The distribution of the scenarios can be used as a density forecast, which is needed for pricing weather derivatives. We consider one to 10โ€dayโ€ahead density forecasts provided by temperature ensemble predictions. More specifically, we evaluate forecasts of the mean and quantiles of the density. The mean of the ensemble scenarios is the most accurate forecast for the mean of the density. We use quantile regression to debias the quantiles of the distribution of the ensemble scenarios. The resultant quantile forecasts compare favourably with those from a GARCH model. These results indicate the strong potential for the use of ensemble prediction in temperature density forecasting.โ€ƒCopyright ยฉ 2004 John Wiley & Sons, Ltd.

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