I have a JAVA_HOME variable set to:
C:\\Program Files (x86)\\Java\\jdk1.7.0_45\\ And the path to the jdk is: C:\\Program Files (x86)\\Java\\jdk1.
Here is the tutorial :- http://javatechig.com/android/installing-android-studio and http://codearetoy.wordpress.com/2010/12/23/jdk-not-found-on-installing-android-sdk/
Adding a system variable JDK_HOME with value c:\Program Files\Java\jdk1.7.0_21\ worked for me. The latest Java release can be downloaded here. Additionally, make sure the variable JAVA_HOME is also set with the above location.
Please note that the above location is my java location. Please post your location in the path