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.