Forecasting With The Theta Method

1The ‐legacy

By Kostas I. Nikolopoulos and Dimitrios D. Thomakos

The laws of nature are but the mathematical thoughts of God

Euclid 

1.1 The Origins…

(Written in first person by Kostas)

Once upon a time

There was a little boy keen on his (Euclidean) geometry…! It seems like yesterday…but actually it was 22 years ago – winter of 1996 – February of 1996. Me (Kostas), an eighth semester young and promising engineer‐to‐be, having completed a year ago my elective module in “Forecasting Techniques” and keen to start the (compulsory) dissertation in the National Technical University of Athens in Greece.

This is an endeavor students usually engage in during the 10 and last semester of MEng – but given that sufficient progress in my studies had been achieved to that point – I opted for an early start: this without being aware that it would mean moooore work; so a dissertation that usually takes 6 months to complete ended up an 18‐month‐long journey…

The topic “Nonparametric regression smoothing” or, in lay terms, time series smoothing (or filtering) with kernel methods – most notably nearest‐neighbor approaches – would later on prove useful in my academic career as well, for forecasting time series. For a non‐statistician – but math‐bombarded engineer – this was quite a spin‐off, but one ...