Dynamic Temporal Reconciliation by Reinforcement learning
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Planning based on long and short term time series forecasts is a common practice across many industries. In this context, temporal aggregation and reconciliation techniques have been useful in improving forecasts, reducing model uncertainty, and providing a coherent forecast across different time horizons. However, an underlying assumption spanning all these techniques is the complete availability of data across all levels of the temporal hierarchy, while this offers mathematical convenience but most of the time low frequency data is partially completed and it is not available while forecasting. On the other hand, high frequency data can significantly change in a scenario like the COVID pandemic and this change can be used to improve forecasts that will otherwise significantly diverge from long term actuals. We propose a dynamic reconciliation method whereby we formulate the problem of informing low frequency forecasts based on high frequency actuals as a Markov Decision Process (MDP) allowing for the fact that we do not have complete information about the dynamics of the process. This allows us to have the best long term estimates based on the most recent data available even if the low frequency cycles have only been partially completed. The MDP has been solved using a Time Differenced Reinforcement learning (TDRL) approach with customizable actions and improves the long terms forecasts dramatically as compared to relying solely on historical low frequency data. The result also underscores the fact that while low frequency forecasts can improve the high frequency forecasts as mentioned in the temporal reconciliation literature (based on the assumption that low frequency forecasts have lower noise to signal ratio) the high frequency forecasts can also be used to inform the low frequency forecasts.
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