Drawdowns and rallies in a finite time-horizon. Drawdowns and rallies (Q973024)

The authors consider a simple random walk \(S_n\) with \(S_0=0\), and define the upward rally and draw down sequences as \(R_n=S_n-\min_{0\leq k\leq n}S_k\) and \(D_n=\max_{0\leq k\leq n}S_k-S_n\), respectively. For \(a\in N\), let \(T_1(a)=\min\{n\geq1:R_n=a\}\) and \(T_2(a)=\min\{n\geq1:D_n=a\}\). For \(T>a\), the probability of the event \(\{T_1(a)\land T<T_2(a)\land T\}\) is computed. Then the authors derive a formula for a similar probability in the case of a Brownian motion model.