Exercise on Double Exponential Smoothing (Holt’s Method)

Dr Emel Aktas

20 September 2017

Notation

𝑛: number of observations (obs) 𝛼: smoothing constant for the level

𝑒# : error for obs. 𝑡 𝛽: smoothing constant for the trend

𝐴# : actual value of obs. 𝑡 𝑎# : estimate of level at 𝑡

𝐹#'(,# : forecast for period 𝑡, produced at 𝑏# : estimate of trend at 𝑡

period 𝑡 − 1, 𝐹#'(,# = 𝑎#'( + 𝑏#'( .

The actual sales of a component are given in Table 1. Assume that 𝛼 = .25 and 𝛽 = .1.
Initial estimates of the level and the trend are 𝑎6 = 200 and 𝑏6 = 10. Forecast the periods 1-5
and the unobserved periods 6-10.

Table 1 Simple Time Series Forecasts

Week: 𝑡 Actual: 𝐴# 𝑎#'(,# 𝑏#'(,# 𝐹#'(,# 𝜏 𝐹#,#9:

200 10
1 200 207.5 9.75 210
2 223 218.7 9.9 217.3
3 231 229.2 10.0 228.6
4 250 241.9 10.2 239.1
5 270 256.6 10.7 252.1
6 Unobserved 267.2
7 2 277.9
8 3 288.6
9 4 299.3
10 5 309.9
To help with your calculations:

𝑎6 = 200 𝑏6 = 10 𝛼 = .25 𝛽 = .1

𝐹6,( = 𝑎6 + 𝑏6 = __210____________________________

𝑎( = 𝛼 ∗ 𝐴# + 1 − 𝛼 ∗ 𝐹( = __207.5_________________________

𝑏( = 𝛽 ∗ 𝑎( − 𝑎6 + 1 − 𝛽 ∗ 𝑏6 = __9.75______________________

𝐹(,< = 𝑎( + 𝑏( = ___217.3___________________________

Continue for the rest of the periods in this fashion.