webmaster: Sven F. Crone
Centre for Forecasting Lancaster University Management School Lancaster LA1 4YF United Kingdom Tel +44.1524.592991 Fax +44.1524.844885 eMail sven dot crone (at) neuralforecasting dot com  
Artificial neural networks (ANN) offer great flexibility in modelling
quantitative forecasting methods. Although error measures play an equally
important role in explanatory forecasting, modelling causal relationships of
variables or between multiple time series [22], this first analysis is limited
to timeseries point predictions with neural networks. Therefore, a variable is
predicted using only observations of the same variable , interpreting the time t
as the only independent variable.[16]
Following, we consider a feedforward multilayer perceptron (MLP) of an arbitrary topology; for the impact of alternative network architectures on time
series prediction see Azoff [5] or Zimmerer [26]. At a point in time t
(t=1,…,T), a onestep ahead forecast is computed using observations from n
preceding points in time t, t1, t2, …, tn1, with n (n=1,…,N) denoting the
number of input units. This models a timeseries prediction in analogy to an
nonlinear autoregressive AR(n) model [16] of the form (1)
A network architecture is displayed in figure 1,
showing Neural Network application to time series forecasting with a (441) MLP, using n=4 input neurons for observations in t, t1, t2, t3, four hidden units,
one output neuron for time period t+1 and two layers of 20 trainable weights.
[23].
The task of the MLP is to model the underlying generator of the data during
training, so that a valid forecast is made when the trained network is
subsequently presented with a new value for the input vector. [6]
Unless a network is perfectly trained, these network outputs differ from the
desired outputs. The network learns the underlying relationship through
minimization of this difference on the training data. The realworld
significance of these deviations depends on the application and is measured by
an objective function, also called error function, whose output rates the
quality of the networks response. [18] As the specification and estimation of an
objective function calls for an actual application, we consider alternative
error functions for sales predictions in inventory management.
In forecasting with ANNs, as in prediction in general, error functions are
applied in all phases of modelling, network selection and application. During
modelling, errors measures are computed and minimised to estimate parameters
fitting a forecasting method to the data, in neural network terminology referred
to as training. After finding valid parameters, error measures are calculated to
verify the ex post quality of a single method, to compare forecast results of
different architectures of a method or to compare results of competing methods.
During the application of a chosen method, error measures may act as
trackingsignals for constant evaluation, modeladaptation or retraining. [20]
Although error functions play a predominant role in neural network forecasting,
standard statistical error measures are routinely used instead of the actual
objective function. As the training of a network determines its validity and
reliability in forecasting, we focus the following analysis on the use of error
measures as objective functions for ANN training.
