Forecasting VaR using analytic higher moments for GARCH processes

It is widely accepted that some of the most accurate Value-at-Risk (VaR) estimates are based on an appropriately specified GARCH process. But when the forecast horizon is greater than the frequency of the GARCH model, such predictions have typically required time-consuming simulations of the aggregated returns distributions. This paper shows that fast, quasi-analytic GARCH VaR calculations can be based on new formulae for the first four moments of aggregated GARCH returns. Our extensive empirical study compares the Cornish–Fisher expansion with the Johnson SU distribution for fitting distributions to analytic moments of normal and Student t, symmetric and asymmetric (GJR) GARCH processes to returns data on different financial assets, for the purpose of deriving accurate GARCH VaR forecasts over multiple horizons and significance levels.

The role of horizontal resolution in simulating drivers of the global hydrological cycle

The role of atmospheric general circulation model (AGCM) horizontal resolution in representing the global energy budget and hydrological cycle is assessed, with the aim of improving the understanding of model uncertainties in simulating the hydrological cycle. We use two AGCMs from the UK Met Office Hadley Centre: HadGEM1-A at resolutions ranging from 270 to 60 km, and HadGEM3-A ranging from 135 to 25 km. The models exhibit a stable hydrological cycle, although too intense compared to reanalyses and observations. This over-intensity is explained by excess surface shortwave radiation, a common error in general circulation models (GCMs). This result is insensitive to resolution. However, as resolution is increased, precipitation decreases over the ocean and increases over the land. This is associated with an increase in atmospheric moisture transport from ocean to land, which changes the partitioning of moisture fluxes that contribute to precipitation over land from less local to more non-local moisture sources. The results start to converge at 60-km resolution, which underlines the excessive reliance of the mean hydrological cycle on physical parametrization (local unresolved processes) versus model dynamics (large-scale resolved processes) in coarser HadGEM1 and HadGEM3 GCMs. This finding may be valid for other GCMs, showing the necessity to analyze other chains of GCMs that may become available in the future with such a range of horizontal resolutions. Our finding supports the hypothesis that heterogeneity in model parametrization is one of the underlying causes of model disagreement in the Coupled Model Intercomparison Project (CMIP) exercises.

An easily implemented agro-hydrological procedure with dynamic root simulation for water transfer in the crop-soil system: validation and application

Models for water transfer in the crop-soil system are key components of agro-hydrological models for irrigation, fertilizer and pesticide practices. Many of the hydrological models for water transfer in the crop-soil system are either too approximate due to oversimplified algorithms or employ complex numerical schemes. In this paper we developed a simple and sufficiently accurate algorithm which can be easily adopted in agro-hydrological models for the simulation of water dynamics. We used a dual crop coefficient approach proposed by the FAO for estimating potential evaporation and transpiration, and a dynamic model for calculating relative root length distribution on a daily basis. In a small time step of 0.001 d, we implemented algorithms separately for actual evaporation, root water uptake and soil water content redistribution by decoupling these processes. The Richards equation describing soil water movement was solved using an integration strategy over the soil layers instead of complex numerical schemes. This drastically simplified the procedures of modeling soil water and led to much shorter computer codes. The validity of the proposed model was tested against data from field experiments on two contrasting soils cropped with wheat. Good agreement was achieved between measurement and simulation of soil water content in various depths collected at intervals during crop growth. This indicates that the model is satisfactory in simulating water transfer in the crop-soil system, and therefore can reliably be adopted in agro-hydrological models. Finally we demonstrated how the developed model could be used to study the effect of changes in the environment such as lowering the groundwater table caused by the construction of a motorway on crop transpiration. (c) 2009 Elsevier B.V. All rights reserved.

Developing a reliable strategy to infer the effective soil hydraulic properties from field evaporation experiments for agro-hydrological models

The Richards equation has been widely used for simulating soil water movement. However, the take-up of agro-hydrological models using the basic theory of soil water flow for optimizing irrigation, fertilizer and pesticide practices is still low. This is partly due to the difficulties in obtaining accurate values for soil hydraulic properties at a field scale. Here, we use an inverse technique to deduce the effective soil hydraulic properties, based on measuring the changes in the distribution of soil water with depth in a fallow field over a long period, subject to natural rainfall and evaporation using a robust micro Genetic Algorithm. A new optimized function was constructed from the soil water contents at different depths, and the soil water at field capacity. The deduced soil water retention curve was approximately parallel but higher than that derived from published pedo-tranfer functions for a given soil pressure head. The water contents calculated from the deduced soil hydraulic properties were in good agreement with the measured values. The reliability of the deduced soil hydraulic properties was tested in reproducing data measured from an independent experiment on the same soil cropped with leek. The calculation of root water uptake took account for both soil water potential and root density distribution. Results show that the predictions of soil water contents at various depths agree fairly well with the measurements, indicating that the inverse analysis is an effective and reliable approach to estimate soil hydraulic properties, and thus permits the simulation of soil water dynamics in both cropped and fallow soils in the field accurately. (C) 2009 Elsevier B.V. All rights reserved.

A universal agro-hydrological model for water and nitrogen cycles in the soil-crop system SMCR_N: critical update and further validation

Agro-hydrological models have widely been used for optimizing resources use and minimizing environmental consequences in agriculture. SMCRN is a recently developed sophisticated model which simulates crop response to nitrogen fertilizer for a wide range of crops, and the associated leaching of nitrate from arable soils. In this paper, we describe the improvements of this model by replacing the existing approximate hydrological cascade algorithm with a new simple and explicit algorithm for the basic soil water flow equation, which not only enhanced the model performance in hydrological simulation, but also was essential to extend the model application to the situations where the capillary flow is important. As a result, the updated SMCRN model could be used for more accurate study of water dynamics in the soil-crop system. The success of the model update was demonstrated by the simulated results that the updated model consistently out-performed the original model in drainage simulations and in predicting time course soil water content in different layers in the soil-wheat system. Tests of the updated SMCRN model against data from 4 field crop experiments showed that crop nitrogen offtakes and soil mineral nitrogen in the top 90 cm were in a good agreement with the measured values, indicating that the model could make more reliable predictions of nitrogen fate in the crop-soil system, and thus provides a useful platform to assess the impacts of nitrogen fertilizer on crop yield and nitrogen leaching from different production systems. (C) 2010 Elsevier B.V. All rights reserved.

Visualizing probabilistic flood forecast information: expert preferences and perceptions of best practice in uncertainty communication

The aim of this article is to improve the communication of the probabilistic flood forecasts generated by hydrological ensemble prediction systems (HEPS) by understanding perceptions of different methods of visualizing probabilistic forecast information. This study focuses on interexpert communication and accounts for differences in visualization requirements based on the information content necessary for individual users. The perceptions of the expert group addressed in this study are important because they are the designers and primary users of existing HEPS. Nevertheless, they have sometimes resisted the release of uncertainty information to the general public because of doubts about whether it can be successfully communicated in ways that would be readily understood to nonexperts. In this article, we explore the strengths and weaknesses of existing HEPS visualization methods and thereby formulate some wider recommendations about the best practice for HEPS visualization and communication. We suggest that specific training on probabilistic forecasting would foster use of probabilistic forecasts with a wider range of applications. The result of a case study exercise showed that there is no overarching agreement between experts on how to display probabilistic forecasts and what they consider the essential information that should accompany plots and diagrams. In this article, we propose a list of minimum properties that, if consistently displayed with probabilistic forecasts, would make the products more easily understandable. Copyright © 2012 John Wiley & Sons, Ltd.

Forecasting by factors, by variables, by both or neither?

We consider forecasting with factors, variables and both, modeling in-sample using Autometrics so all principal components and variables can be included jointly, while tackling multiple breaks by impulse-indicator saturation. A forecast-error taxonomy for factor models highlights the impacts of location shifts on forecast-error biases. Forecasting US GDP over 1-, 4- and 8-step horizons using the dataset from Stock and Watson (2009) updated to 2011:2 shows factor models are more useful for nowcasting or short-term forecasting, but their relative performance declines as the forecast horizon increases. Forecasts for GDP levels highlight the need for robust strategies, such as intercept corrections or differencing, when location shifts occur as in the recent financial crisis.

Macroeconomic forecasting with mixed-frequency data: forecasting output growth in the United States

Many macroeconomic series, such as U.S. real output growth, are sampled quarterly, although potentially useful predictors are often observed at a higher frequency. We look at whether a mixed data-frequency sampling (MIDAS) approach can improve forecasts of output growth. The MIDAS specification used in the comparison uses a novel way of including an autoregressive term. We find that the use of monthly data on the current quarter leads to significant improvement in forecasting current and next quarter output growth, and that MIDAS is an effective way to exploit monthly data compared with alternative methods.

Late Quaternary hydrological dynamics in the Middle Kalahari: forcing and feedbacks

The Kalahari region has become a major source of Quaternary palaeoenvironmental data derived primarily from the analysis of geomorphological proxies of environmental change. One suite of data, from palaeolacustrine landforms, has recently provided a new record of major hydrological changes in the last 150 ka [Burrough, S. L., Thomas, D. S. G., Bailey, R. M., 2009. Mega-Lake in the Kalahari: A Late Pleistocene record of the Palaeolake Makgadikgadi system. Quaternary Science Reviews, in press.]. Here we present an improved analysis of the drivers and feedbacks of lake level change, utilising information from three main sources: data from the lake system itself, from analyses of other late Quaternary records within the region and from climate modelling. Simulations using the Hadley Centre coupled climate model, HadCM3, suggest that once triggered, the lake body was large enough to potentially affect both local and regional climates. Surface waters and their interactions with the climate are therefore an important component of environmental dynamics during the late Quaternary. Through its capacity to couple Middle Kalahari environments to distant forcing mechanisms and to itself force environmental change, we demonstrate that the existence or absence of megalake Makgadikgadi adds a new level of complexity to the interpretations of environmental proxy records in southern Africa's summer rainfall zone.

Coupling ensemble weather predictions based on TIGGE database with Grid-Xinanjiang model for flood forecast

The incorporation of numerical weather predictions (NWP) into a flood forecasting system can increase forecast lead times from a few hours to a few days. A single NWP forecast from a single forecast centre, however, is insufficient as it involves considerable non-predictable uncertainties and lead to a high number of false alarms. The availability of global ensemble numerical weather prediction systems through the THORPEX Interactive Grand Global Ensemble' (TIGGE) offers a new opportunity for flood forecast. The Grid-Xinanjiang distributed hydrological model, which is based on the Xinanjiang model theory and the topographical information of each grid cell extracted from the Digital Elevation Model (DEM), is coupled with ensemble weather predictions based on the TIGGE database (CMC, CMA, ECWMF, UKMO, NCEP) for flood forecast. This paper presents a case study using the coupled flood forecasting model on the Xixian catchment (a drainage area of 8826 km2) located in Henan province, China. A probabilistic discharge is provided as the end product of flood forecast. Results show that the association of the Grid-Xinanjiang model and the TIGGE database gives a promising tool for an early warning of flood events several days ahead.

Ensemble forecasting using TIGGE for the July-September 2008 floods in the Upper Huai catchment: a case study.

We present a case study using the TIGGE database for flood warning in the Upper Huai catchment (ca. 30 672 km2). TIGGE ensemble forecasts from 6 meteorological centres with 10-day lead time were extracted and disaggregated to drive the Xinanjiang model to forecast discharges for flood events in July-September 2008. The results demonstrated satisfactory flood forecasting skills with clear signals of floods up to 10 days in advance. The forecasts occasionally show discrepancies both in time and space. Forecasting quality could potentially be improved by using temporal and spatial corrections of the forecasted precipitation.

Challenges in communicating and using ensembles in operational flood forecasting.

Following trends in operational weather forecasting, where ensemble prediction systems (EPS) are now increasingly the norm, flood forecasters are beginning to experiment with using similar ensemble methods. Most of the effort to date has focused on the substantial technical challenges of developing coupled rainfall-runoff systems to represent the full cascade of uncertainties involved in predicting future flooding. As a consequence much less attention has been given to the communication and eventual use of EPS flood forecasts. Drawing on interviews and other research with operational flood forecasters from across Europe, this paper highlights a number of challenges to communicating and using ensemble flood forecasts operationally. It is shown that operational flood forecasters understand the skill, operational limitations, and informational value of EPS products in a variety of different and sometimes contradictory ways. Despite the efforts of forecasting agencies to design effective ways to communicate EPS forecasts to non-experts, operational flood forecasters were often skeptical about the ability of forecast recipients to understand or use them appropriately. It is argued that better training and closer contacts between operational flood forecasters and EPS system designers can help ensure the uncertainty represented by EPS forecasts is represented in ways that are most appropriate and meaningful for their intended consumers, but some fundamental political and institutional challenges to using ensembles, such as differing attitudes to false alarms and to responsibility for management of blame in the event of poor or mistaken forecasts are also highlighted. Copyright © 2010 Royal Meteorological Society.

Ensemble flood forecasting: a review.

Operational medium range flood forecasting systems are increasingly moving towards the adoption of ensembles of numerical weather predictions (NWP), known as ensemble prediction systems (EPS), to drive their predictions. We review the scientific drivers of this shift towards such ‘ensemble flood forecasting’ and discuss several of the questions surrounding best practice in using EPS in flood forecasting systems. We also review the literature evidence of the ‘added value’ of flood forecasts based on EPS and point to remaining key challenges in using EPS successfully.

Evaluation of ECMWF medium-range ensemble forecasts of precipitation for river basins

Providing probabilistic forecasts using Ensemble Prediction Systems has become increasingly popular in both the meteorological and hydrological communities. Compared to conventional deterministic forecasts, probabilistic forecasts may provide more reliable forecasts of a few hours to a number of days ahead, and hence are regarded as better tools for taking uncertainties into consideration and hedging against weather risks. It is essential to evaluate performance of raw ensemble forecasts and their potential values in forecasting extreme hydro-meteorological events. This study evaluates ECMWF’s medium-range ensemble forecasts of precipitation over the period 2008/01/01-2012/09/30 on a selected mid-latitude large scale river basin, the Huai river basin (ca. 270,000 km2) in central-east China. The evaluation unit is sub-basin in order to consider forecast performance in a hydrologically relevant way. The study finds that forecast performance varies with sub-basin properties, between flooding and non-flooding seasons, and with the forecast properties of aggregated time steps and lead times. Although the study does not evaluate any hydrological applications of the ensemble precipitation forecasts, its results have direct implications in hydrological forecasts should these ensemble precipitation forecasts be employed in hydrology.