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Minimally invasive arthroscopic surgery has become the gold standard for orthopedic surgery procedures on joints done by making small incisions on the skin through which special miniature pencil-like cameras and tools are inserted. Simulation of the arthroscopic procedures in virtual environments is based on the specifics of the arthroscopic camera which is normally not a common forward-looking but a short-focus side-looking camera. In this paper we write about two problems which arise when modeling views seen through the virtual arthroscopic camera controlled by a desktop hap tic device in a hybrid image-based virtual environment. These are automatic creation of panoramic images of the surgical field from the actual arthroscopic videos and removing fish-eye distortions from the individual video frames.