WeightedDesmooth_AR1
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Function Description
Returns an array corresponding to the AR(1) weighted
desmoothed (or ‘decorrelated’) 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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