Markets: A Rigorous Course

M13 · Problem 13 ★★ Check

Multi-category Brier

A forecaster gives probabilities p=(p1,p2,p3)\mathbf p = (p_1,p_2,p_3) for "Nifty falls more than 1% / moves less than 1% / rises more than 1% this week". The multi-category Brier score is ∑k(pk−yk)2\sum_k(p_k - y_k)^2 with yy the one-hot outcome. (a) Prove it is strictly proper. (b) Compute the score of p=(0.2,0.5,0.3)\mathbf p = (0.2, 0.5, 0.3) if the index rose 1.4%. (c) Show that the log score −ln⁡pk\*-\ln p_{k^\*} (k\*k^\* the realised category) is strictly proper for any number of categories.

Answers

Commas, ₹, % and 1e-3 notation are accepted.

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