The Asymptotic Efficiency of Improved Prediction Intervals

TL;DR

This paper introduces an improved prediction interval method with better coverage properties, demonstrating that its asymptotic efficiency is independent of the estimator's bias, simplifying practical application.

Contribution

It extends the Barndorff-Nielsen and Cox modification to prediction intervals and shows their asymptotic efficiency is unaffected by the estimator's bias.

Findings

Improved prediction intervals have better coverage properties.

Asymptotic efficiency is independent of estimator bias.

Method applies to maximum likelihood estimators.

Abstract

Barndorff-Nielsen and Cox (1994, p.319) modify an estimative prediction limit to obtain an improved prediction limit with better coverage properties. Kabaila and Syuhada (2008) present a simulation-based approximation to this improved prediction limit, which avoids the extensive algebraic manipulations required for this modification. We present a modification of an estimative prediction interval, analogous to the Barndorff-Nielsen and Cox modification, to obtain an improved prediction interval with better coverage properties. We also present an analogue, for the prediction interval context, of this simulation-based approximation. The parameter estimator on which the estimative and improved prediction limits and intervals are based is assumed to have the same asymptotic distribution as the (conditional) maximum likelihood estimator. The improved prediction limit and interval depend on the asymptotic conditional bias of this estimator. This bias can be very sensitive to very small changes in the estimator. It may require considerable effort to find this bias. We show, however, that the improved prediction limit and interval have asymptotic efficiencies that are functionally independent of this bias. Thus, improved prediction limits and intervals obtained using the Barndorff-Nielsen and Cox type of methodology can conveniently be based on the (conditional) maximum likelihood estimator, whose asymptotic conditional bias is given by the formula of Vidoni (2004, p.144). Also, improved prediction limits and intervals obtained using Kabaila and Syuhada type approximations have asymptotic efficiencies that are independent of the estimator on which these intervals are based.