Incorporating Higher Moments into Value at Risk Forecasting

Value-at-risk (VaR) forecasting generally relies on a parametric density function of portfolio returns that ignores higher moments or assumes them constant. In this paper, we propose a simple approach to forecasting of a portfolio VaR. We employ the Gram-Charlier expansion (GCE) augmenting the standard normal distribution with the first four moments, which are allowed to vary over time. In an extensive empirical study, we compare the GCE approach to other models of VaR forecasting and conclude that it provides accurate and robust estimates of the realized VaR. In spite of its simplicity, on our dataset GCE outperforms other estimates that are generated by both constant and time-varying higher-moments models.

Current methods and advances in forecasting of wind power generation

Wind power generation differs from conventional thermal generation due to the stochastic nature of wind. Thus wind power forecasting plays a key role in dealing with the challenges of balancing supply and demand in any electricity system, given the uncertainty associated with the wind farm power output. Accurate wind power forecasting reduces the need for additional balancing energy and reserve power to integrate wind power. Wind power forecasting tools enable better dispatch, scheduling and unit commitment of thermal generators, hydro plant and energy storage plant and more competitive market trading as wind power ramps up and down on the grid. This paper presents an in-depth review of the current methods and advances in wind power forecasting and prediction. Firstly, numerical wind prediction methods from global to local scales, ensemble forecasting, upscaling and downscaling processes are discussed. Next the statistical and machine learning approach methods are detailed. Then the techniques used for benchmarking and uncertainty analysis of forecasts are overviewed, and the performance of various approaches over different forecast time horizons is examined. Finally, current research activities, challenges and potential future developments are appraised. (C) 2011 Elsevier Ltd. All rights reserved.

Methods in wind power prediction & forecasting

Globally on-shore wind power has seen considerable growth in all grid systems. In the coming decade off-shore wind power is also expected to expand rapidly. Wind power is variable and intermittent over various time scales because it is weather dependent. Therefore wind power integration into traditional grids needs additional power system and electricity market planning and management for system balancing. This extra system balancing means that there is additional system costs associated with wind power assimilation. Wind power forecasting and prediction methods are used by system operators to plan unit commitment, scheduling and dispatch and by electricity traders and wind farm owners to maximize profit. Accurate wind power forecasting and prediction has numerous challenges. This paper presents a study of the existing and possible future methods used in wind power forecasting and prediction for both on-shore and off-shore wind farms.

Assessing the Impact of Technology on Aircraft Systems using Technology Impact Forecasting

In today’s atmosphere of constrained defense spending and reduced research budgets, determining how to allocate resources for research and design has become a critical and challenging task. In the area of aircraft design there are many promising technologies to be explored, yet limited funds with which to explore them. In addition, issues concerning uncertainty in technology readiness as well as the quantification of the impact of a technology (or combinations of technologies), are of key importance during the design process. This paper presents a methodology that details a comprehensive and structured process in which to quantitatively explore the effects of technology for a given baseline aircraft. This process, called Technology Impact Forecasting (TIF), involves the creation of a assessment environment for use in conjunction with defined technology scenarios, and will have a significant impact on resource allocation strategies for defense acquisition. The advantages and limitations of the method are discussed. In addition, an example TIF application, that of an Uninhabited Combat Aerial Vehicle, is presented and serves to illustrate the applicability of this methodology to a military system.

Habitat Isolation Reduces the Temporal Stability of Island Ecosystems in the Face of Flood Disturbance

Natural ecosystems are increasingly exposed to multiple anthropogenic stressors, including land-use change, deforestation, agricultural intensification, and urbanisation, all of which have led to widespread habitat fragmentation, which is also likely to be amplified further by predicted climate change. The potential interactive effects of these different stressors cannot be determined by studying each in isolation, although such synergies have been largely ignored in ecological field studies to date. Here, we use a model system of naturally fragmented islands in a braided river network, which is exposed to periodic inundation, to investigate the interactive effects of habitat isolation and flood disturbance. Food web structure was similar across the islands during periods of hydrological stability, but several key properties were altered in the aftermath of flood disturbance, based on distance of the islands from the regional source pool of species: taxon richness and mean food chain length declined with habitat isolation after flooding, while the proportion of basal species increased. Greater species turnover through time reflected the slower process of re-colonisation on the more distant islands following disturbance. Increased variability of several food web properties over a 1-year period highlighted the reduced temporal stability of isolated habitat fragments. Many of these effects reflected the differential successes of predator and prey species at re-colonising the islands: even though larger, more mobile consumers may reach the more distant islands first, they cannot establish populations until the lower trophic levels have successfully reassembled. These results highlight the susceptibility of fragmented ecosystems to environmental perturbations. © 2013 Elsevier Ltd.

Offshore wind power forecasting error and electricity market implications

Wind energy has been identified as key to the European Union’s 2050 low carbon economy. However, as wind is a variable resource and stochastic by nature, it is difficult to plan and schedule the power system under varying wind power generation. This paper investigates the impacts of offshore wind power forecast error on the operation and management of a pool-based electricity market in 2050. The impact of the magnitude and variance of the offshore wind power forecast error on system generation costs, emission costs, dispatch-down of wind, number of start-ups and system marginal price is analysed. The main findings of this research are that the magnitude of the offshore wind power forecast error has the largest impact on system generation costs and dispatch-down of wind, but the variance of the offshore wind power forecast error has the biggest impact on emissions costs and system marginal price. Overall offshore wind power forecast error variance results in a system marginal price increase of 9.6% in 2050.

Forecasting Death Rates Using Exogenous Determinants

Mortality models used for forecasting are predominantly based on the statistical properties of time series and do not generally incorporate an understanding of the forces driving secular trends. This paper addresses three research questions: Can the factors found in stochastic mortality-forecasting models be associated with real-world trends in health-related variables? Does inclusion of health-related factors in models improve forecasts? Do resulting models give better forecasts than existing stochastic mortality models? We consider whether the space spanned by the latent factor structure in mortality data can be adequately described by developments in gross domestic product, health expenditure and lifestyle-related risk factors using statistical techniques developed in macroeconomics and finance. These covariates are then shown to improve forecasts when incorporated into a Bayesian hierarchical model. Results are comparable or better than benchmark stochastic mortality models.

Bandwidth selection by cross-validation for forecasting long memory financial time series

The paper addresses the issue of choice of bandwidth in the application of semiparametric estimation of the long memory parameter in a univariate time series process. The focus is on the properties of forecasts from the long memory model. A variety of cross-validation methods based on out of sample forecasting properties are proposed. These procedures are used for the choice of bandwidth and subsequent model selection. Simulation evidence is presented that demonstrates the advantage of the proposed new methodology.