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Function Description

Returns an array corresponding to the AR(1) weighted 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, ;


(b)   Identifying the value of  (between 0 and 0.5) for which  has zero weighted first order correlation (which implies that the weighted covariance between  and  is zero; and


(c)    Using this value of  deriving  using the following formula:



In step (b) we weight the elements in the covariance computation using weights  (where  corresponds to the weight given to the component arising from the term in .


The value of  in (b) can be accessed using MnWeightedDesmooth_AR1_rho.


If the weights are equal then returns the same as MnDesmooth_AR1.


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