Drawdowns preceding rallies in the Brownian motion model |
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| Authors: | Olympia Hadjiliadis |
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| Institution: | Department of Mathematics , Drexel University , Philadelphia , PA 19104 , USA |
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| Abstract: | We study drawdowns and rallies of Brownian motion. A rally is defined as the difference of the present value of the Brownian motion and its historical minimum, while the drawdown is defined as the difference of the historical maximum and its present value. This paper determines the probability that a drawdown of a units precedes a rally of b units. We apply this result to examine stock market crashes and rallies in the geometric Brownian motion model. |
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| Keywords: | Drawdowns Brownian motion model Rallies |
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