Decision Tree Classification and Forecasting of Pricing Time Series Data

Abstract: Many companies today, in different fields of operations and sizes, have access to a vast amount of data which was not available only a couple of years ago. This situation gives rise to questions regarding how to organize and use the data in the best way possible. In this thesis a large database of pricing data for products within various market segments is analysed. The pricing data is from both external and internal sources and is therefore confidential. Because of the confidentiality, the labels from the database are in this thesis substituted with generic ones and the company is not referred to by name, but the analysis is carried out on the real data set. The data is from the beginning unstructured and difficult to overlook. Therefore, it is first classified. This is performed by feeding some manual training data into an algorithm which builds a decision tree. The decision tree is used to divide the rest of the products in the database into classes. Then, for each class, a multivariate time series model is built and each product’s future price within the class can be predicted. In order to interact with the classification and price prediction, a front end is also developed. The results show that the classification algorithm both is fast enough to operate in real time and performs well. The time series analysis shows that it is possible to use the information within each class to do predictions, and a simple vector autoregressive model used to perform it shows good predictive results.