Message-ID: <30472906.1075856423566.JavaMail.evans@thyme>
Date: Thu, 19 Apr 2001 01:49:00 -0700 (PDT)
From: stinson.gibner@enron.com
To: jeffrey.shankman@enron.com
Subject: New model for P+ options
Cc: spencer.vosko@enron.com, mark.fondren@enron.com, vince.kaminski@enron.com
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Jeff,

In response to your request for a new option valuation model for P+, I have 
talked with Spencer about his needs for managing the options and have done 
some analysis of historical posting prices and their relationship to moves in 
the Nymex.   

Although you specifically mentioned building a Monte-Carlo type of model,  
this should probably be avoided if possible because of the substantial 
recalculation time which would  burden  both the trader and book 
administrator.   We can accomplish the same goal by extending the current 
spread option model to the case where one of the legs of the spread is a 
basket of commodities.  For P+,  one leg of the spread is a combination of 
the Nymex Swap and the Posting Basis (which added, gives the Posting Price). 

The valuation function itself is ready, so all that remains is to incorporate 
this new function into a test version of the book so we can calculate the P&L 
impact.   We will need to work with Spencer and Mark on this to be sure that 
we are using the correct inputs and positions.   Based on some initial 
experiments, I don't think that this model will lead to a large change in the 
value of these options.

Regards,

Stinson

