An extensive evaluation of seven machine learning methods for rainfall prediction in weather derivatives

• Published in: Expert systems with applications 2017-11, Vol.85, p.169-181
• Main Authors: Cramer, Sam, Kampouridis, Michael, Freitas, Alex A., Alexandridis, Antonis K.
• Format: Article
• Language: English
• Subjects: Algorithms; Artificial intelligence; Climatology; Derivatives; Expert systems; Genetic algorithms; Machine learning; Markov chains; Neural networks; Performance prediction; Predictions; Rain; Rainfall; State of the art; Support vector machines; Time series; Volatility; Weather derivatives
• ISSN: 0957-4174; 1873-6793
• DOI: 10.1016/j.eswa.2017.05.029

•An extensive evaluation of machine learning methods.•Predictive performance not affected between Europe and the USA.•Some linear relationships exists between error and climate.•Machine learning methods outperform state-of-the-art. Regression problems provide some of the most challenging research opportunities in the area of machine learning, and more broadly intelligent systems, where the predictions of some target variables are critical to a specific application. Rainfall is a prime example, as it exhibits unique characteristics of high volatility and chaotic patterns that do not exist in other time series data. This work’s main impact is to show the benefit machine learning algorithms, and more broadly intelligent systems have over the current state-of-the-art techniques for rainfall prediction within rainfall derivatives. We apply and compare the predictive performance of the current state-of-the-art (Markov chain extended with rainfall prediction) and six other popular machine learning algorithms, namely: Genetic Programming, Support Vector Regression, Radial Basis Neural Networks, M5 Rules, M5 Model trees, and k-Nearest Neighbours. To assist in the extensive evaluation, we run tests using the rainfall time series across data sets for 42 cities, with very diverse climatic features. This thorough examination shows that the machine learning methods are able to outperform the current state-of-the-art. Another contribution of this work is to detect correlations between different climates and predictive accuracy. Thus, these results show the positive effect that machine learning-based intelligent systems have for predicting rainfall based on predictive accuracy and with minimal correlations existing across climates.