Weighted MLP-ARIMA series hybrid model for time series forecasting

Abstract

With the increasing importance of forecasting with the utmost degree of accuracy, utilizing hybrid frameworks become a must for obtaining more accurate and more reliable forecasting results. Series hybrid methodology is one of the most widely-used hybrid approaches that has encountered a great amount of popularity in the literature of time series forecasting and has been applied successfully in a wide variety of domains. In such hybrid methods is assumed that there is an additive relationship among different components of time series. Thus, based on this assumption, various individual models can apply separately on decomposed components, and the final forecast can be obtained. However, developed series hybrid models in the literature are constructed based on the decomposing time series into linear and nonlinear parts and generating linear-nonlinear modeling order for decomposed parts. Another assumption considered in the traditional series model is assigning equal weights to each model used for modeling linear and nonlinear components. Thus, contrary to traditional series hybrid models, to improve the performance of series hybrid models, these two basic assumptions have been violated in this paper. This study aims to propose a novel weighted MLP-ARIMA model filling the gap of series hybrid models by changing the order of sequence modeling and assigning weight for each component. Firstly, the modeling order is changed to nonlinear-linear, and then Multi-Layer Perceptron Neural Network (MLPNN) -Auto-Regressive Integrated Moving Average(ARIMA) models are employed to model and process nonlinear and linear components respectively. Secondly, each model's weights are computed by the Ordinary Least Square (OLS) weighting algorithm. Thus, in this paper, a novel improved weighted MLP-ARIMA series hybrid model is proposed for time series forecasting. The real-world benchmark data sets, including Wolf's sunspot data, the Canadian lynx data, and the British pound/US dollar exchange rate data, are elected to verify the effectiveness of the proposed weighted MLP-ARIMA series hybrid model. The simulation results revealed that the weighted MLP-ARIMA model could obtain superior performance compared to ARIMA-MLP, MLP-ARIMA, as well as the ARIMA and MLPNN individual models. The proposed hybrid model can be an effective alternative to improve forecasting accuracy obtained by traditional series hybrid methods.