On the maximum drawdown of a Brownian motion

Abstract

The maximum drawdown at time T of a random process on [0, T ] can be defined informally as the largest drop from a peak to a trough. In this paper, we investigate the behaviour of this statistic for a Brownian motion with drift. In particular, we give an infinite series representation of its distribution and consider its expected value. When the drift is zero, we give an analytic expression for the expected value, and for nonzero drift, we give an infinite series representation. For all cases, we compute the limiting ( T → ∞) behaviour, which can be logarithmic (for positive drift), square root (for zero drift) or linear (for negative drift).