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The maximum drawdown of the Brownian motion
Abstract
The MDD is defined as the maximum loss incurred from peak to bottom during a specified period of time. It is often preferred over some of the other risk measures because of the tight relationship between large drawdowns and fund redemptions. Also, a large drawdown can even indicate the start of a deterioration of an otherwise successful trading system, for example due to a market regime switch. Overall, the MDD is a very important risk measure. To be able to use it more insightfully, its analytical properties have to be understood. As a step towards this direction, we have presented in this article some analytic results that we have developed. We hope more and more results will come out from the research community analyzing this important measure.
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“…decline in portfolio value from its peak to its trough throughout the evaluation period, providing a measure for down-side risk: 2) It highlights the worst loss an investor could have faced and is commonly used to assess risk and volatility (Magdon-Ismail et al., 2004; Chekhlov et al., 2005).”
Metadata
- Authors
- Magdon-Ismail, M., Atiya, A., Pratap, A., & Abu-Mostafa, Y.
- Affiliations
- Cairo University (EG)
- California Institute of Technology (US)
- ORCID
- Atiya, A.
- Venue
- 2003 IEEE International Conference on Computational Intelligence for Financial Engineering, 2003. Proceedings.
- Publisher
- IEEE
- Published
- 2003-12-22
- Pages
- 243-247
- OpenAlex
- W1890781297
- Cited by
- 24
- References
- 0
- Citations by year
- 2023: 1 · 2021: 1 · 2020: 3 · 2019: 1 · 2018: 2 · 2017: 5 · 2015: 2 · 2014: 3 · 2013: 1
- FWCI
- 1.83
- Type
- conference paper
- Language
- en
- Open access
- closed
- Locations
- IEEE Conference on Computational Intelligence for Financial Engineering & Economics (publishedVersion)
- CaltechAUTHORS (California Institute of Technology) (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Stochastic processes and financial applications
- Social Sciences › Decision Sciences › Management Science and Operations Research › Risk and Portfolio Optimization
- Social Sciences › Decision Sciences › Management Science and Operations Research › Probability and Risk Models
- Keywords
- maximum drawdown, Brownian motion, risk measures, fund redemptions, analytical results
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