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.

Graph-based algorithms for comparison and prediction of household-level energy use profiles

We present an efficient graph-based algorithm for quantifying the similarity of household-level energy use profiles, using a notion of similarity that allows for small time–shifts when comparing profiles. Experimental results on a real smart meter data set demonstrate that in cases of practical interest our technique is far faster than the existing method for computing the same similarity measure. Having a fast algorithm for measuring profile similarity improves the efficiency of tasks such as clustering of customers and cross-validation of forecasting methods using historical data. Furthermore, we apply a generalisation of our algorithm to produce substantially better household-level energy use forecasts from historical smart meter data.

Trade-offs and responsiveness of the single-layer urban canopy parametrization in WRF: an offline evaluation using the MOSCEM optimization algorithm and field observations

For an increasing number of applications, mesoscale modelling systems now aim to better represent urban areas. The complexity of processes resolved by urban parametrization schemes varies with the application. The concept of fitness-for-purpose is therefore critical for both the choice of parametrizations and the way in which the scheme should be evaluated. A systematic and objective model response analysis procedure (Multiobjective Shuffled Complex Evolution Metropolis (MOSCEM) algorithm) is used to assess the fitness of the single-layer urban canopy parametrization implemented in the Weather Research and Forecasting (WRF) model. The scheme is evaluated regarding its ability to simulate observed surface energy fluxes and the sensitivity to input parameters. Recent amendments are described, focussing on features which improve its applicability to numerical weather prediction, such as a reduced and physically more meaningful list of input parameters. The study shows a high sensitivity of the scheme to parameters characterizing roof properties in contrast to a low response to road-related ones. Problems in partitioning of energy between turbulent sensible and latent heat fluxes are also emphasized. Some initial guidelines to prioritize efforts to obtain urban land-cover class characteristics in WRF are provided. Copyright © 2010 Royal Meteorological Society and Crown Copyright.

Diurnal warm-layer events in the western Mediterranean and European shelf seas

We characterize near-surface ocean diurnal warm-layer events, using satellite observations and fields from numerical weather forecasting. The study covers April to September, 2006, over the area 11°W to 17°E and 35°N to 57°N, with 0.1° cells. We use hourly satellite SSTs from which peak amplitudes of diurnal cycles in SST (dSSTs) can be estimated with error ∼0.3 K. The diurnal excursions of SST observed are spatially and temporally coherent. The largest dSSTs exceed 6 K, affect 0.01% of the surface, and are seen in the Mediterranean, North and Irish Seas. There is an anti-correlation between the magnitude and the horizontal length scale of dSST events. Events wherein dSST exceeds 4 K have length scales of ≤40 km. From the frequency distribution of different measures of wind-speed minima, we infer that extreme dSST maxima arise where conditions of low wind speed are sustained from early morning to mid afternoon.

A statistical model for sea surface diurnal warming driven by numercial weather predictions fluxes and winds

A statistical model is derived relating the diurnal variation of sea surface temperature (SST) to the net surface heat flux and surface wind speed from a numerical weather prediction (NWP) model. The model is derived using fluxes and winds from the European Centre for Medium-Range Weather Forecasting (ECMWF) NWP model and SSTs from the Spinning Enhanced Visible and Infrared Imager (SEVIRI). In the model, diurnal warming has a linear dependence on the net surface heat flux integrated since (approximately) dawn and an inverse quadratic dependence on the maximum of the surface wind speed in the same period. The model coefficients are found by matching, for a given integrated heat flux, the frequency distributions of the maximum wind speed and the observed warming. Diurnal cooling, where it occurs, is modelled as proportional to the integrated heat flux divided by the heat capacity of the seasonal mixed layer. The model reproduces the statistics (mean, standard deviation, and 95-percentile) of the diurnal variation of SST seen by SEVIRI and reproduces the geographical pattern of mean warming seen by the Advanced Microwave Scanning Radiometer (AMSR-E). We use the functional dependencies in the statistical model to test the behaviour of two physical model of diurnal warming that display contrasting systematic errors.

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.

Forecast encompassing tests and probability forecasts

We consider tests of forecast encompassing for probability forecasts, for both quadratic and logarithmic scoring rules. We propose test statistics for the null of forecast encompassing, present the limiting distributions of the test statistics, and investigate the impact of estimating the forecasting models' parameters on these distributions. The small-sample performance is investigated, in terms of small numbers of forecasts and model estimation sample sizes. We show the usefulness of the tests for the evaluation of recession probability forecasts from logit models with different leading indicators as explanatory variables, and for evaluating survey-based probability forecasts.

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.

Urban retrofitting: identifying disruptive and sustaining technologies using performative and foresight techniques

Cities, which are now inhabited by a majority of the world's population, are not only an important source of global environmental and resource depletion problems, but can also act as important centres of technological innovation and social learning in the continuing quest for a low carbon future. Planning and managing large-scale transitions in cities to deal with these pressures require an understanding of urban retrofitting at city scale. In this context performative techniques (such as backcasting and roadmapping) can provide valuable tools for helping cities develop a strategic view of the future. However, it is also important to identify ‘disruptive’ and ‘sustaining’ technologies which may contribute to city-based sustainability transitions. This paper presents research findings from the EPSRC Retrofit 2050 project, and explores the relationship between technology roadmaps and transition theory literature, highlighting the research gaps at urban/city level. The paper develops a research methodology to describe the development of three guiding visions for city-regional retrofit futures, and identifies key sustaining and disruptive technologies at city scale within these visions using foresight (horizon scanning) techniques. The implications of the research for city-based transition studies and related methodologies are discussed.

Multi-site evaluation of an urban land-surface model: intra-urban heterogeneity, seasonality and parameter complexity requirements

An extensive off-line evaluation of the Noah/Single Layer Urban Canopy Model (Noah/SLUCM) urban land-surface model is presented using data from 15 sites to assess (1) the ability of the scheme to reproduce the surface energy balance observed in a range of urban environments, including seasonal changes, and (2) the impact of increasing complexity of input parameter information. Model performance is found to be most dependent on representation of vegetated surface area cover; refinement of other parameter values leads to smaller improvements. Model biases in net all-wave radiation and trade-offs between turbulent heat fluxes are highlighted using an optimization algorithm. Here we use the Urban Zones to characterize Energy partitioning (UZE) as the basis to assign default SLUCM parameter values. A methodology (FRAISE) to assign sites (or areas) to one of these categories based on surface characteristics is evaluated. Using three urban sites from the Basel Urban Boundary Layer Experiment (BUBBLE) dataset, an independent evaluation of the model performance with the parameter values representative of each class is performed. The scheme copes well with both seasonal changes in the surface characteristics and intra-urban heterogeneities in energy flux partitioning, with RMSE performance comparable to similar state-of-the-art models for all fluxes, sites and seasons. The potential of the methodology for high-resolution atmospheric modelling application using the Weather Research and Forecasting (WRF) model is highlighted. This analysis supports the recommendations that (1) three classes are appropriate to characterize the urban environment, and (2) that the parameter values identified should be adopted as default values in WRF.

The integrated WRF/urban modelling system: development, evaluation, and applications to urban environmental problems

To bridge the gaps between traditional mesoscale modelling and microscale modelling, the National Center for Atmospheric Research, in collaboration with other agencies and research groups, has developed an integrated urban modelling system coupled to the weather research and forecasting (WRF) model as a community tool to address urban environmental issues. The core of this WRF/urban modelling system consists of the following: (1) three methods with different degrees of freedom to parameterize urban surface processes, ranging from a simple bulk parameterization to a sophisticated multi-layer urban canopy model with an indoor–outdoor exchange sub-model that directly interacts with the atmospheric boundary layer, (2) coupling to fine-scale computational fluid dynamic Reynolds-averaged Navier–Stokes and Large-Eddy simulation models for transport and dispersion (T&D) applications, (3) procedures to incorporate high-resolution urban land use, building morphology, and anthropogenic heating data using the National Urban Database and Access Portal Tool (NUDAPT), and (4) an urbanized high-resolution land data assimilation system. This paper provides an overview of this modelling system; addresses the daunting challenges of initializing the coupled WRF/urban model and of specifying the potentially vast number of parameters required to execute the WRF/urban model; explores the model sensitivity to these urban parameters; and evaluates the ability of WRF/urban to capture urban heat islands, complex boundary-layer structures aloft, and urban plume T&D for several major metropolitan regions. Recent applications of this modelling system illustrate its promising utility, as a regional climate-modelling tool, to investigate impacts of future urbanization on regional meteorological conditions and on air quality under future climate change scenarios. Copyright © 2010 Royal Meteorological Society

Effects of temporal resolution of input precipitation on the performance of hydrological forecasting

Flood prediction systems rely on good quality precipitation input data and forecasts to drive hydrological models. Most precipitation data comes from daily stations with a good spatial coverage. However, some flood events occur on sub-daily time scales and flood prediction systems could benefit from using models calibrated on the same time scale. This study compares precipitation data aggregated from hourly stations (HP) and data disaggregated from daily stations (DP) with 6-hourly forecasts from ECMWF over the time period 1 October 2006–31 December 2009. The HP and DP data sets were then used to calibrate two hydrological models, LISFLOOD-RR and HBV, and the latter was used in a flood case study. The HP scored better than the DP when evaluated against the forecast for lead times up to 4 days. However, this was not translated in the same way to the hydrological modelling, where the models gave similar scores for simulated runoff with the two datasets. The flood forecasting study showed that both datasets gave similar hit rates whereas the HP data set gave much smaller false alarm rates (FAR). This indicates that using sub-daily precipitation in the calibration and initiation of hydrological models can improve flood forecasting.