Optimal Prediction Under Asymmetric Loss
Prediction problems involving asymmetric loss functions arise routinely in many fields, yet the theory of optimal prediction under asymmetric loss is not well developed. We study the optimal prediction problem under general loss structures and characterize the optimal predictor. We compute the optimal predictor analytically in two leading cases. Analytic solutions for the optimal predictor are not available in more complicated cases, so we develop numerical procedures for computing it. We illustrate the results by forecasting the GARCH(1,1) process which, although white noise, is non-trivially forecastable under asymmetric loss.
|Date of creation:||Oct 1994|
|Date of revision:|
|Publication status:||published as as "Futher Results on Forcasting and Model Selection Under Asymmetric Loss ," Journal of Applied Econometrics, Vol. 11 (1996): 561-572.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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