**On the Laplace Transforms of the First Hitting Times for Drawdowns and Drawups of Diffusion-Type Processes**

### **Pavel V. Gapeev 1,***∗***, Neofytos Rodosthenous 2 and V. L. Raju Chinthalapati 3**


Received: 27 May 2019; Accepted: 30 July 2019; Published: 5 August 2019

**Abstract:** We obtain closed-form expressions for the value of the joint Laplace transform of the running maximum and minimum of a diffusion-type process stopped at the first time at which the associated drawdown or drawup process hits a constant level before an independent exponential random time. It is assumed that the coefficients of the diffusion-type process are regular functions of the current values of its running maximum and minimum. The proof is based on the solution to the equivalent inhomogeneous ordinary differential boundary-value problem and the application of the normal-reflection conditions for the value function at the edges of the state space of the resulting three-dimensional Markov process. The result is related to the computation of probability characteristics of the take-profit and stop-loss values of a market trader during a given time period.

**Keywords:** Laplace transform; first hitting time; diffusion-type process; running maximum and minimum processes; boundary-value problem; normal reflection.
