valuing caps on naptha (file included)

---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 12/10/99
06:00 PM ---------------------------

Pinnamaneni Krishnarao
12/10/99 04:46 PM
To: Vince J Kaminski/HOU/ECT@ECT
cc:
Subject: valuing caps on naptha (file included)

FYI. Indian papers and politicians are complaining about the high prices for
power that the state govt. in Maharastra is paying to Enron. The reason:
Naphtha prices more than doubled in 1999 and the fuel cost is a pass through
(I can't believe they let it floating!). They requested our help in pricing
caps on naphtha.
Krishna.
---------------------- Forwarded by Pinnamaneni Krishnarao/HOU/ECT on
12/10/99 04:41 PM ---------------------------

Pinnamaneni Krishnarao
12/09/99 01:33 PM
To: Anshuman Srivastav/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Rajesh
Sivaraman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sandeep
Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
cc:
Subject: valuing caps on naptha (file included)

Hi guys!
I calculated the premiums for monthly caps for different cap (strike) levels
using the 1999 prices as forward prices. The scenarios I included are:
1. At-the-money (ATM) caps: cap level = forward price (FP)
2. Out-of-the-money (OTM) caps: cap level = (1+x) * FP where x = 5%, 10%, 15%
& 20%
3. Constant cap level across months: $168 (average of FPs), $200, and $250.

Brief results: Historical naptha volatility is 34% over last 2-years (which
is higher than over the 10-year period - see the volatility chart). Premiums
expressed as percent of the average naptha price for 2000:

ATM = 10.4%
ATM*= 13% (Assumiung FP = $224/MT)
5% OTM = 8.4%
10% OTM = 6.8%
15% OTM = 5.5%
20% OTM = 4.4%
$168 Cap = 15%
$200 Cap = 9%
$225 Cap = 6%.

If you are looking to protect from any price move up from the current level,
you will be looking at 10-15% range. Please keep in mind these are only
indicative, since we are just guessing the forward prices. Given such drastic
changes in prices during the last year, we really need to get an indication
of the forward prices. I made some inquiries here and found the name of the
person trading naptha. It is John L Chismar in Singapore (
Ph.011-65-838-9016; email: jchisma@ect.enron.com). Please contact him today
and try to get an indication of the forward prices and volatilities for 2000.

It would be much easier if we can install our Exotic Options Library in your
office. We need to place it in a common drive that all of you can access. If
any of the common drives you use is G, J, M, O, or P, I can send you the
files to be installed. If your common drive has another initial, we need to
do some programming here before sending to you.

Call me to discuss/clarify further. You can call me at home if necessary
(home ph. 281-240-5705; I am awake till 11PM usually).
best wishes,
Krishna.

Anshuman Srivastav @ ENRON_DEVELOPMENT

12/09/99 09:05:49 AM

To: Pinnamaneni Krishnarao@ECT
cc: Rajesh Sivaraman/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Sandeep
Kohli/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT
Subject: Historical Naphtha Prices - 1987-1999

Hi Mr.Krishnarao,

Was really nice talking to you! As per out telecon please find attached an
excel sheet with the monthly FOB Naphtha prices from 1987-99. I am trying to
get the forward prices for naphtha sent to you as well.

Appreciate the help from you!!

Thank & Best Regards,

Anshuman