Error Measures of Prediction

Two different measures were considered for assessing the quality of forecast. The first one is the mean-square error (MSE), and the second measure is the percentage error in prediction. Mean-squared error is calculated as the mean of squares of the difference between market price and the predicted price. Thus:

I X(Market Price of the bond - Predicted Price)2 I Total number of test samples

Percentage error in prediction is calculated by the following formula:

„ I (Market Price of the bond - Predicted Price) !, „„

Market Price of the bond

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