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Quantitative Finance · Glossary

What is Predictive distribution, proper scoring rule?

Also known as: predictive distribution · proper scoring rule

Definition 11.1 Machine Learning for Markets · Chapter 11 — Probabilistic Models and Uncertainty

A predictive distribution is a forecast of the whole conditional distribution F(⋅∣x)F(\cdot\mid x) of the target. A scoring rule S(F,y)S(F, y) gives a loss to a forecast FF when yy occurs; it is a proper scoring rule if its expected value under the true distribution GG is minimised by forecasting F=GF = G, so that honesty is optimal (Gneiting and Raftery, 2007). The negative log-likelihood is proper; so are the two rules below.

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