Question

In: Statistics and Probability

What is the formula for a two step ahead exponential smoothing forecast?

What is the formula for a two step ahead exponential smoothing forecast?

Solutions

Expert Solution

Double exponential smoothing employs a level component and a trend component at each period. Double exponential smoothing uses two weights, (also called smoothing parameters), to update the components at each period. The double exponential smoothing equations are as follows:

Formula

Lt = α Yt + (1 – α) [Lt –1 + Tt –1]

Tt = γ [LtLt –1] + (1 – γ) Tt –1

= Lt –1 + Tt –1

If the first observation is numbered one, then level and trend estimates at time zero must be initialized in order to proceed. The initialization method used to determine how the smoothed values are obtained in one of two ways: with optimal weights or with specified weights.

Notation

Term Description
Lt level at time t
α weight for the level
Tt trend at time t
γ weight for the trend
Yt data value at time t
fitted value, or one-step-ahead forecast, at time t

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