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Enron Mail |
Thanks for the comments Grant. The presentation is for a couple of external
conferences that Vince volunteered me for - Vince has OK'd the content, and Stinson raised exactly the same issues as you. Unfortunately I just don't seem to be getting any response from RISK whatsoever on the publication of my article, so these conferences will be the public debut for my real options notation. Of course the discounting/risk neutrality thing is where the real judgement sits. When questions arise I'll take the line that while Research formulates the models using appropriate derivatives/market based valuation methods, we work with our RAC group which considers the discounting to be associated with various risks, and chooses these rates appropriately. The notation makes clear which uncertainties we are exposed to at different stages of the deals, which assists in choosing the rates. In practice I'm not yet at the stage where originators are using my notation yet - another reason I can't say too much about its actual use at the conference. I'm producing various tools for deterministic hydro optimization, GBM swing option valuation, and deterministic DP optimization for genset dispatch which people want right now - I'm working in the background on the kind of modelling my notation demands. People are getting to know me as a guy who can solve their immediate problems, and they'll be more likely to listen when I start rolling out the "proper" options-based models. My notation is currently used only in the specs I'm writing for the tools I'm producing. I'll be turning Dale's spreadsheet-based power plant spread model into an American Monte Carlo tool, which will then be available for inclusion in other models. I think by the end of the summer the real options theoretical work will start to bear fruit, one year after I initially proposed the notation. With the quant IT group I'm co-creating in place, I may yet see the automated diagramming/pricing tool made real. Thanks also for the pointer to Tom Halliburton. The use of the LINGO LP/integer package is something I've been presented with for the Teesside plant operation optimizer, rather than something I chose. The PERM (Physical Energy Risk Mgt) group just got a couple of analysts to hack it together (including Natasha Danilochkina), then asked me to tidy it up when it didn't work. They are going to use their existing faulty model for now (to meet their project deadlines), and I'm sketching out a proper mathematical spec for the problem. I've persuaded (!) them that this sort of business-critical system should be developed properly by Research, and they now seem happy to fall into line. Their Wilton plant optimizer was developed by one Peter Morawitz, the guy I hoped to recruit into Research, and they obviously didn't realise he was better than average at quantitative modelling. Anyway they now accept that doing it properly will take months rather than weeks, and I'll have a freer hand in my choice of modelling tool - so a chat with Tom would be extremely valuable. Cheers, Steve Enron Capital & Trade Resources Corp. From: Grant Masson 05/15/2000 07:27 PM To: Steven Leppard/LON/ECT@ECT cc: Subject: Real options presentation Steve: I read through your presentation. Looks good as expected. Remind me; is this an internal Enron or external presentation? If external, I would say it is just at the limit before sliding into proprietary stuff. Perhaps that's why you've neatly almost entirely avoided questions about discounting and risk-neutrality or lack of it? Regards, Grant.
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