A stock has daily log volatility 1.8%. A trader places a stop 3% below entry. (a) Using log prices, compute the probability that the stop is hit within 5 and within 20 trading days with no drift. (b) Repeat for 20 days with drift a day. (c) Explain in two sentences why the answer to (a) is not evidence of "stop hunting".
M04A · Problem 3 ★ Check
Stop-out probabilities
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