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An efficient algorithm for simulating the drawdown stopping time and the running maximum of a Brownian motion

Dassios, Angelos and Lim, Jia Wei (2017) An efficient algorithm for simulating the drawdown stopping time and the running maximum of a Brownian motion. Methodology and Computing in Applied Probability, 20 (1). pp. 189-204. ISSN 1387-5841

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Identification Number: 10.1007/s11009-017-9542-y

Abstract

We define the drawdown stopping time of a Brownian motion as the first time its drawdown reaches a duration of length 1. In this paper, we propose an efficient algorithm to efficiently simulate the drawdown stopping time and the associated maximum at this time. The method is straightforward and fast to implement, and avoids simulating sample paths thus eliminating discretisation bias. We show how the simulation algorithm is useful for pricing more complicated derivatives such as multiple drawdown options.

Item Type: Article
Official URL: http://www.springer.com/statistics/journal/11009
Additional Information: © 2017 The Authors © CC BY 4.0
Divisions: Statistics
Subjects: H Social Sciences > HA Statistics
Sets: Departments > Statistics
Date Deposited: 12 Jan 2017 11:41
Last Modified: 20 May 2019 23:07
URI: http://eprints.lse.ac.uk/id/eprint/68823

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