Time Series Lecture 3

Stat 153: Lecture 2 – Muliplicative SARIMA and CV
Sören Künzel
srk@berkeley.edu
Monday 7th November, 2016
Sören Künzel (UC Berkeley) Stat 153: Lecture 2 Monday 7th November, 2016 1 / 14
Decreasing IQ
IQ development
120
val
100
80
2 4 6 8 10
t
Decreasing IQ
IQ development
130
120
110
val
100
90
80
2 4 6 8 10
Sören Künzel (UC Berkeley) Stat 153: Lecture
t 2 Monday 7th November, 2016 2 / 14
Decreasing IQ
IQ development
130
120
110
val
100
90
80
2 4 6 8 10
Sören Künzel (UC Berkeley) Stat 153: Lecture
t 2 Monday 7th November, 2016 2 / 14
Trend and Seasonality
Xt = mt + st + Zt
mt is the trend, e.g. mt = (t − 150)3

st is the seasonality, e.g. st = 15 sin(2πt/30)
Zt is a stationary process, e.g. Gaussian white noise.
ARIMA
ARMA(p,q)
{Xt } is said to be ARMA(p, q) with mean µ, if {Xt − µ} is ARMA(p, q),
i.e., if {Xt } is stationary and
φ(B)(Xt − µ) = θ(B)Zt
with φ(z) = 1 − φ1 z − · · · − φp z p and θ(z) = 1 + θ1 z + · · · + θq z q
ARIMA(p,d,q)
{Yt } is said to be ARIMA(p, d, q) with mean µ, if Xt = ∇d Yt is
ARMA(p, d) with mean µ.
md <- arima(dataset, order = c(p, d, q))

predict(md, 10) #predicts the next 10 values
Seasonal ARIMA
ARMA(P, Q)d
{Xt } is said to be ARMA(P, Q)d with mean µ and period d, if {Xt } is
stationary and
Φ(B d )(Xt − µ) = Θ(B d )Zt
with Φ(B d ) = 1 − φ1 B d − · · · − φP B Pd and
Θ(B d ) = 1 + θ1 B d + · · · + θQ B Qd .
{Xt } is said to be ARMA(P, Q)d with mean µ and period d, if {Xt } is

stationary and
(Xt −µ)−φ1 (Xt−d −µ)−· · ·−φP (Xt−Pd −µ) = Zt +θ1 Zt−d +· · ·+θQ Zt−Qd
md <- arima(Y, order = c(0,0,0),

seasonal = list(order = c(P, 0, Q), period = d))
Multiplicative Seasonal ARIMA
ARMA(P, Q) × (P, D)d

{Xt } is said to be a multiplicative seasonal ARMA(p, q) × (P, Q)d with
mean µ and period d, if {Xt } is stationary and
Φ(B d )φ(B)(Xt − µ) = Θ(B d )θ(B)Zt
with for polinomials Φ a polinomial of order P, φ a polinomial of order p,

Θ a polinomial of order Q, θ a polinomial of order q.
md <- arima(Y, order = c(p,d,q),

seasonal = list(order = c(P, D, Q), period = s))
Example 1 and 2
Forecasting
1.) Exploratory Data Analysis (e.g. Should we remove part of the data?),
2.) Transformation,
3.) Deal with Trend and Seasonality(Parametrically, Differencing, . . . )
until we receive a stationary process,
4.) Fit ARMA (or SARMA) model to the residuals,
5.) Model diagnostic (Ljung-Box-Pierce test, AIC, BIC, CV)
6.) Forecasting
Model Selection – the General Idea
Which model is better?
350 355 360 365 370 375 380 385
co2_tr
0 20 40 60 80 100 120
Which model is better?
350 355 360 365 370 375 380 385
co2_tr
0 20 40 60 80 100 120
MSE
Suppose, we had data (x1 , . . . , xn ) and we wanted to predict
(xn+1 , . . . , xn+k ). Then the Mean Squared Error (MSE) is given by
Pn+k
i=n+1 (xi − x̂i )2
MSE = .
k
Our task is to chose the predictor with the lowest MSE.
MSE
Suppose, we had data (x1 , . . . , xn ) and we wanted to predict
(xn+1 , . . . , xn+k ). Then the Mean Squared Error (MSE) is given by
Pn+k
i=n+1 (xi − x̂i )2
MSE = .
k
Our task is to chose the predictor with the lowest MSE.
This is impossible since the xi is unobserved for i > n.
Estimating the MSE – AIC & BIC
AIC – Akaike Information Criterion

AIC = −2 log(maximum likelihood) + 2k
k is the number of parameters, e.g. for an ARIMA(p,q) with mean µ,

thus k =
n is the number of observation
maximum likelihood is big, if our model fits the data very well.


thus k = p + q + 2

BIC – Bayesian Information Criterion

BIC = −2 log(maximum likelihood) + k log n

thus k = p + q + 2
Estimating the MSE – CV for time series
Suppose we wanted to compare ` competing methods {M1 , . . . , M` } and

we have weekly data for m years.
1.) Fit each method, Mi , to the first k years and pretend that the
remaining years are unknown.
2.) Predict for each fitted method the k + 1st year and compute the MSE
for the prediction.
3.) Repeat those steps for k = k0 , . . . , m − 1, and average for each
method the MSE. This average is called CV-score.
4.) Pick the model with the lowest CV score.
Suppose we wanted to compare ` competing methods {M1 , . . . , M` } and

we have weekly data for m years.
1.) Fit each method, Mi , to the first k years and pretend that the
remaining years are unknown.
2.) Predict for each fitted method the k + 1st year and compute the MSE
for the prediction.
3.) Repeat those steps for k = k0 , . . . , m − 1, and average for each
method the MSE. This average is called CV-score.
4.) Pick the model with the lowest CV score.
There are many other ways how one could use the idea of CV to
select the best method and this is just one way and likely not the
best way!
Example 3
Readings
Read lecture notes 17, 18, 19 from fall (see piazza)

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Stat 153: Lecture 2 – Muliplicative SARIMA and CV

Monday 7th November, 2016

mt is the trend, e.g. mt = (t − 150)3

with φ(z) = 1 − φ1 z − · · · − φp z p and θ(z) = 1 + θ1 z + · · · + θq z q

md <- arima(dataset, order = c(p, d, q))

{Xt } is said to be ARMA(P, Q)d with mean µ and period d, if {Xt } is

md <- arima(Y, order = c(0,0,0),

ARMA(P, Q) × (P, D)d

Φ(B d )φ(B)(Xt − µ) = Θ(B d )θ(B)Zt

with for polinomials Φ a polinomial of order P, φ a polinomial of order p,

md <- arima(Y, order = c(p,d,q),

AIC – Akaike Information Criterion

k is the number of parameters, e.g. for an ARIMA(p,q) with mean µ,

AIC – Akaike Information Criterion

k is the number of parameters, e.g. for an ARIMA(p,q) with mean µ,

AIC – Akaike Information Criterion

BIC – Bayesian Information Criterion

k is the number of parameters, e.g. for an ARIMA(p,q) with mean µ,

Suppose we wanted to compare ` competing methods {M1 , . . . , M` } and

Suppose we wanted to compare ` competing methods {M1 , . . . , M` } and

Read lecture notes 17, 18, 19 from fall (see piazza)

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