Hi there. I would like to ask is there anyone can explain how to find the semi-variance for the asset 2? Thanks in advance
Hi Jia The solution is calculated using the formula for the downside semi-variance (DSV) on the summary page of Chapter 4. For example, for the Poisson distribution, we are trying to work out DSV(0.02X) where X is Poi(3). I have converted from percentage to decimal to avoid any confusion from the %). DSV(0.02X) = 0.0004 DSV(X) as the multiplicative constant gets squared in a variance formula. To work out DSV(X), we use the formula on Page 23 of Chapter 4 for the discrete DSV: DSV(X) = Σ (x - μ)^2 * P(X = x) where we are summing for x < μ We have μ = 3 for the Poisson distribution in question so we need to include x = 0, x = 1, x = 2 in the summation. Hence the summation becomes: (0 - 3)^2 * P(X = 0) + (1 - 3)^2 * P(X = 1) + (2 - 3)^2 * P(X = 2) Now substitute in for the Poisson probabilities using the probability function on Page 7 of the Yellow Tables. Does this give you enough info to have a go Jia? Remember to multiply by the 0.0004 at the end to get DSV(0.02X). All the best Anna
