Handling forecast uncertainty

The main goal of the forecasting process, as we saw previously, is to minimize the level of uncertainty around the future values of the series. Although we cannot completely eliminate this uncertainty, we can quantify it and provide some range around the point estimate of the forecast (which is nothing but the model's expected value of each point in the future). This can be done by using either the confidence interval (or a credible interval, when using the Bayesian model) or by using simulation.

Confidence interval

The confidence interval is a statistical approximation method that's used to express the range of possible values that contain the true value with some degree of confidence...