Determining Risk (calculating expected drawdown)

[janitor@xxxxxxxxxxxx (Mark Johnson)]

The approach Lincoln Fiske mentions (considering
only *downside* volatility rather than both upside
and downside volatility to be "risk", and thus
calculating a standard deviation of downside
returns (losses)) has indeed been published.
For a recent example, see Jack Schwager's book
"Managed Trading: Myths and Truths" (ISBN 0-471-02057-5,
copyright 1996), page 37.

Schwager calls it "semideviation" and he given an
example of using it to compute a modified Sharpe
ratio which doesn't penalize wild equity upswings
but does penalize downswings.

--
   Mark Johnson     Silicon Valley, California     mark@xxxxxxxxxxxx

   "... The world will little note, nor long remember, what is said
    here today..."   -Abraham Lincoln, "The Gettysburg Address"