Use Holt’s method to create a model that minimizes the MSE
for the data set. Use Solver to...

Question

Use Holt’s method to create a model that minimizes the MSE
for the data set. Use Solver to determine the optimal values of  and


a. What are the optimal values of  and
?

b. Prepare a line graph comparing the predictions from
Holt’s method against the original data.

c. What are the forecasts for each of the first six months
in 2006 using this technique?

d. Calculate multiplicative seasonal indices for each month
using the results of Holt’s method.

e. Use these seasonal indices to compute seasonal forecasts
for each of the first six months in 2006.

f. Calculate additive seasonal indices for each month using
the results of Holt’s method.

g. Use these seasonal indices to compute seasonal forecasts
for each of the first six months in 2006.

Robert · Accepted Answer

Step-by-step solution
(a)
The data given in the question is shown below:
It is required to model the data with Holt’s Method. The objective is to minimize the mean square error. The model is solved in solver.
The model is represented as:
Where
Here, represents the expected level of the time series or the base level in period , and represents the expected rate of increase or decrease per period .
Now, in the above equations the current predictions are based on the previous values. So, it is required to initialize the estimated levels and the expected rate of increase.
The above model is shown below:
The values of alpha and beta are the decision variables. All other parameters can be calculated in their terms.

Use Holt’s method to create a model that minimizes the MSE for the data set. Use Solver to determine the optimal values of and a. What are the optimal values of and ? b. Prepare a line graph...

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