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The method of wavelet thresholding for removing noise, or denoising, has been researched extensively due to its effectiveness and simplicity. Much of the literature has focused on developing the best uniform threshold or best basis selection. However, not much has been done to make the threshold values adaptive to the spatially changing statistics of images. Such adap- tivity can improve the wavelet thresholding performance because it allows additional local information of the image (such as the identification of smooth or edge regions) to be incorporated into the algorithm. This work proposes a spatially adaptive wavelet thresholding method based on context modeling, a common tech- nique used in image compression to adapt the coder to changing image characteristics. Each wavelet coefficient is modeled as a random variable of a generalized Gaussian distribution with an unknown parameter. Context modeling is used to estimate the parameter for each coefficient, which is then used to adapt the thresholding strategy. This spatially adaptive thresholding is ex- tended to the overcomplete wavelet expansion, which yields better results than the orthogonal transform. Experimental results show that spatially adaptive wavelet thresholding yields significantly superior image quality and lower MSE than the best uniform thresholding with the original image assumed known.