On the closed-loop Volterra method for analyzing and forecasting time series

Abstract

This paper studies the closed-loop Volterra method for analyzing and predicting stationary time series. The method represents the dependence of a current observation on past observations through polynomial terms, including powers of individual lags and interactions between different lags. Since the number of coefficients increases rapidly with the memory length and polynomial degree, we use the theory of reproducing kernel Hilbert spaces to estimate these coefficients by regularized least squares through kernel evaluations. We establish conditions on marginal moments, temporal dependence, model complexity and regularization under which the prediction risk converges to the minimum mean squared prediction error as the sample size increases. We also consider data-driven selection of tuning parameters by a rolling-origin procedure based on one-step-ahead prediction errors, and show that the resulting selector asymptotically attains the prediction risk of the best candidate in the considered grid. Simulation studies and a real-data application examine the finite-sample performance of the method and its comparison with linear and nonlinear prediction methods.