# Computing stop probability

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## Computing stop probability

 Maybe a naive question but given the price and SD of an asset, is there a way to calculate the probability of hitting a stop set at X over the next N days? I know making appropriate assumptions, this is a Wiener process but can't find the correct equation. A) Is there a closed form solution for this? B) Is there an R function related to this? Ernie Sent from my iPhone _______________________________________________ [hidden email] mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance-- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.
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## Re: Computing stop probability

 You might want to check out the derivation of the Thorp / Black-Scholes-Merton formula as it deals with essentially the same concepts... On Wed, Nov 25, 2015 at 11:27 AM, Ernest Stokely <[hidden email]> wrote: > Maybe a naive question but given the price and SD of an asset, is there a > way to calculate the probability of hitting a stop set at X over the next N > days? I know making appropriate assumptions, this is a Wiener process but > can't find the correct equation. > > A) Is there a closed form solution for this? > B) Is there an R function related to this? > > Ernie > > Sent from my iPhone > _______________________________________________ > [hidden email] mailing list > https://stat.ethz.ch/mailman/listinfo/r-sig-finance> -- Subscriber-posting only. If you want to post, subscribe first. > -- Also note that this is not the r-help list where general R questions > should go. >         [[alternative HTML version deleted]] _______________________________________________ [hidden email] mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance-- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.
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## Re: Computing stop probability

 On Tue, Nov 24, 2015 at 6:31 PM, Nick White <[hidden email]> wrote: > You might want to check out the derivation of the Thorp / > Black-Scholes-Merton formula as it deals with essentially the same > concepts... > > On Wed, Nov 25, 2015 at 11:27 AM, Ernest Stokely <[hidden email]> > wrote: > >> Maybe a naive question but given the price and SD of an asset, is there a >> way to calculate the probability of hitting a stop set at X over the next N >> days? I know making appropriate assumptions, this is a Wiener process but >> can't find the correct equation. >> >> A) Is there a closed form solution for this? >> B) Is there an R function related to this? >> Black-Scholes (and stochastic volatility extensions) can give you a probability of hitting a price under the equivalent martingale measure ("Q") but that can be pretty far from the "real-world" ("P") probability of the same event happening. Or it may be close, depends on your market. If you don't want to do the math (it really is easy though -- half a page at most), the relevant delta is decent approximation. _______________________________________________ [hidden email] mailing list https://stat.ethz.ch/mailman/listinfo/r-sig-finance-- Subscriber-posting only. If you want to post, subscribe first. -- Also note that this is not the r-help list where general R questions should go.