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Enron Mail |
Bill and Mark,
the figure below shows you what happens when we simulate forward prices using current methodology of our Credit Reserve Model. The time scale on this figure goes from 0 to 30 years. I started with $5.2 gas prices at time 0 and used the NG forward volatility curve which has 50% volatilities in the front and 13.5% vols for long-term contracts. You can see from the figure, that, for example, at 30 years horizon the price will be more than $13.4 with probability 5% but less than $22.1 with probability 99%. The corresponding lower bounds are $1.17 and $0.71. Tanya From: William S Bradford/ENRON@enronXgate on 03/26/2001 11:22 AM To: Mark Ruane/ENRON@enronXgate, Naveen Andrews/ENRON@enronXgate, Tanya Rohauer/ENRON@enronXgate, Debbie R Brackett/HOU/ECT@ECT, Tanya Tamarchenko/HOU/ECT@ECT, Rabi De/NA/Enron@ENRON, Wenyao Jia/ENRON@enronXgate cc: Subject: RE: GBM vs Reversion Both seem to provide fairly unrealistic values. $50 gas over the term seems improbable, however, a $6 gas peak does not represent capture all potential price movement at 99% confience interval. What were your assumptions on price curves, volatilty curves, and trend reversion? Bill -----Original Message----- From: Ruane, Mark Sent: Monday, March 26, 2001 11:11 AM To: Bradford, William S.; Andrews, Naveen; Rohauer, Tanya; Brackett, Debbie; Tamarchenko, Tanya; De, Rabi; Jia, Winston Subject: GBM vs Reversion A quick example of the impact of using GBM based simulation: Based on a five year swap, the expected losses are 18% higher as a result of GBM. Attached chart shows the relative long-term gas prices under both processes. << File: gbmcht.xls << Mark
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