Formulas for stopped diffusion processes with stopping times based on drawdowns and drawups |
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Authors: | Libor Pospisil Jan Vecer Olympia Hadjiliadis |
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Institution: | Department of Statistics, Columbia University, 1255 Amsterdam Avenue, NY 10027, USA; Department of Mathematics, Brooklyn College (C.U.N.Y.), Ingersoll Hall, NY 11209, USA |
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Abstract: | This paper studies drawdown and drawup processes in a general diffusion model. The main result is a formula for the joint distribution of the running minimum and the running maximum of the process stopped at the time of the first drop of size a. As a consequence, we obtain the probabilities that a drawdown of size a precedes a drawup of size b and vice versa. The results are applied to several examples of diffusion processes, such as drifted Brownian motion, Ornstein–Uhlenbeck process, and Cox–Ingersoll–Ross process. |
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Keywords: | primary 91B28 secondary 60G44 |
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