So that's your threshold, so any shortfall from

that is a bad variation and it takes a value of 0, right?

If the observation is greater than the target because we don't count that.

What is wi?

Well it's the weight applied to each return.

Now of course we're equally weighted, for up,

then this would be simply 1 over N, right?

So P is for any moment when you think of that, if P is equal to 2,

then you have the semi, the target semi variance, okay?

All right, so now let's put this into use in an example Right?

So what I have here is a table of quarterly returns for

the Russell Top 50 Index for the US.

And it illustrates how we calculate the downside deviation for

a sample of returns given a target of zero, right?

So here is my, here is my tow here, right?

That's the target, right?

Here are the quarterly returns, right?

So the first two columns present the dates and the returns.

The third column presents the indicator function, right?

That takes a value of either one or

zero depending on whether the quarterly return is above or below the target.

In this case it's simply zero, right?

And in the fourth column is the deviation from the target.

All right, so using the formula that I just presented in the spreadsheet,

I computed the targets in my variance, right?

So where the p is now obviously it's equal to two, right?

And now I first computed the target's semi-variance, right?

And then computed the target semideviation.

Now, you can work with this spreadsheet, you can find it on the website and

play around with the spreadsheet and make sure that you get the same results.

Okay.