WeightedDesmooth_AR1_rho
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Function Description
Returns the desmoothing parameter 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, ; and
(b) Identifying the value
of (between 0 and 0.5)
for which has zero weighted
first order correlation (which implies that the covariance between and is zero.
The desmoothed series, , can then be
derived using the following formula, see MnWeightedDesmooth_AR1:
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 ). If the weights
are equal then returns the same as MnDesmooth_AR1_rho.
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