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Motion Estimation (ME) is the most computationally intensive part of video compression and video enhancement systems. For the recently available high definition (HD) video formats, the computational complexity of full search (FS) ME algorithm is prohibitively high, whereas the PSNR obtained by fast search ME algorithms is low. Therefore, in this paper, we present dynamically variable step search (DVSS) ME algorithm for processing high definition video formats and a dynamically reconfigurable hardware architecture for efficiently implementing DVSS algorithm. The simulation results showed that DVSS algorithm performs very close to FS algorithm by searching much fewer search locations than FS algorithm and it outperforms successful fast search ME algorithms by searching more search locations than these algorithms. The proposed hardware is implemented in VHDL and is capable of processing high definition video formats in real time. Therefore, it can be used in consumer electronics products for video compression, frame rate up-conversion and de-interlacing.