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Enron Mail |
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
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