Desmooth_AR1_rho
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Function Description
Returns the de-smoothing parameter corresponding to the
AR(1) de-smoothed (or ‘de-correlated) values of a series, as described in the
book Extreme Events.
This involves:
(a)
Postulating (for, say, a return series) that there is some underlying
‘true’ return series, , and that the observed
series, , derives from it via a
first order autoregressive model, ; and
(b) Identifying
the value of (between 0 and 0.5) for
which has zero first order
correlation (which implies that the covariance between and is zero.
The de-smoothed series, ,
can then be derived using the following formula, see MnDesmooth_AR1:
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