UBC Theses and Dissertations
Geostatistics applied to forecasting metal prices Faulkner, Reginald Lloyd
The objective of this thesis was to investigate the effectiveness of kriging as a predictor of future prices for copper, lead and zinc on the London Metal Exchange. The annual average metal prices from 1884 to 1986 were deflated into constant price series with reference to a base of 1984 prices. Analysis of the data showed that the requirement of stationarity was satisfied if the price series were divided into three distinct time periods viz. 1884 to 1917; 1918 to 1953; 1954 to 1986. For copper each of the three time periods were studied in detail, but for lead and zinc only the most recent period was included in this thesis. Spherical models gave a good fit to the experimental semi-variograms computed for each metal-time period and were used to predict future prices by ordinary kriging. Universal Kriging was applied to the most recent time period for each metal by fitting a polynomial curve to the price-time series, computing experimental semi-variograms from the residuals and then fitting spherical models which were used to predict future prices. Within the most recent price-time series, a further subdivision was made by taking that portion of the period from the highest price to 1986. Experimental semi-variograms from the residuals from fitted polynomial curves showed pure nugget effect and consequently extrapolation of the polynomial was used as the price predictor. The kriged and extrapolated future price estimates were compared to future prices estimated by a simple random walk using residual sums of squared differences. For four of the five time series analyzed, ordinary kriging produced the best future price estimates. For copper from 1918 to 1953 , the simple random walk was marginally better than ordinary kriging. This was probably due to the low price variability in this period resulting from the Great Depression and government price controls associated with the Second World War and the Korean War. Specific forecasts for 1985 and 1986 were most accurate for copper and lead by universal kriging and most accurate for zinc by ordinary kriging. The results are encouraging and future investigations should include: applying other kriging methods : analyzing daily and monthly prices : comparing results with more sophisticated time series analysis techniques.
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