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I´m using Octave to build a Neural Network regression (3 layers nn, using tanh as activation function, fmincg as optimizer and continuous output). The purpose of the model is to forecast demand for some products, based on multiple variables (past demand of the products, past stock levels, pendent orders, etc.). I'm normalizing all inputs and output.

The quality of the forecast is finally evalued with SFE (statistical forecast error), which I defined in Octave as: $$SFE=\frac{\sum_{i=1}^{m}abs(Y_m-Forecast_m)}{\sum_{i=1}^{m}Forecast_m}$$. Despite this, I'm training the model as a "traditional" regression, using a sum of square errors as cost function (J): $$J=\frac{\sum_{i=1}^{m}(Y_m-Forecast_m)^2}{2m}$$. I think this is not correct, as learning should be made towards the real objective (SFE) and J is over-estimating the impact of bigger deviations. But as abs() has no derivative, I don't realize how SFE function could work under a back-prop training for the nn.

How should the cost function (J) be defined so as to train the model towards SFE? I'd like to use SFE itself, but I don't find it possible as I have to compute the gradient in order for the optimizer to work (fmincg for Octave) and abs() is not differentiable at 0. The answer should cover this aspect for the optimizer to work.

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It would probably be best to use a loss function based on the absolute, rather than the squared errors. This will give a model that computes the conditional median of the target distribution, rather than the conditional mean. For details, see

M Saerens, "Building cost functions minimizing to some summary statistics", IEEE Transactions on Neural Networks, 11 (6), 1263-1271, 2000.

which is a very nice paper and ought to be much better known that it is. It is probably not too doficult to use the SFE itself as the loss function, although it will involve more programming.

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Thanks, Dikran! I agree with you, a function based on the absolute deviation should work better. I've done many tests, and realized current loss function is not leading towards learning (tests with many training iterations and regularization testing perform even worse than tests with just a few iterations!). I'd like to include SFE as cost function, but that doesn't seem feasible for me as I have to compute the gradient for learning. Do you have any clue on this? –  MigueMorkin Dec 28 '12 at 13:53
    
I suspect the absolute deviation will be a very close approximation, as I suspect that the sum of the output will be more or less constant for models that are in the same ball park as the best. –  Dikran Marsupial Dec 28 '12 at 16:37
    
The problem I have with using the absolute deviation is that it´s not differentiable at 0. Then, the gradient computation will not be possible for back-propagation to work. Am I correct? –  MigueMorkin Dec 28 '12 at 19:21
    
It might be detrimental if you use non linear conjugate gradient. Stochastic gradient will have no problem with it. Instead of the absolute value, you can however use $\sqrt{x^2 + \epsilon}$ as an approximation, with a rather small $\epsilon$, e.g. 1e-4. –  bayerj Dec 28 '12 at 19:57
    
Thanks, that´s right, bayerj. In this case, we are using the fmincg package for Octave (which implements a nonlinear conjugant gradient). That´s why a replacement is needed for the partial derivatives vector to be calculated. In case of using your propossed approximation, how would you mathematically compute a gradient? –  MigueMorkin Dec 28 '12 at 22:19
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