WTI maket maker simulation model

---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 12/01/2000
03:35 PM ---------------------------

Zimin Lu
12/01/2000 02:44 PM
To: John J Lavorato/Corp/Enron@Enron
cc: Stinson Gibner/HOU/ECT@ECT, Vince J Kaminski/HOU/ECT@ECT
Subject: WTI maket maker simulation model

John,

We finished the Version 2 of the simulation model which deals with the
open-close trading versus the continuous trading in the previous version.

I added the cummulative P/L as an output. There are a few apparent trading
strategies from this model:

1) Higher bid/offer spread, more profit
2) More Daily # of trades, more profit
3) Smaller net open positions allowed, more profit

1) and 2) are obvious, but 3) is more interesting. It means that we are
better off
if we do not allowed net open positions at end of the day. In a trending
market,
this makes an intuitive sense, for example, in the case of bull market we are
short as a market maker and we can avoid the loss at the higher openning price
by keeping zero or small net short positions.

I have attached the model with this mail, and I'll be happy to discuss the
model
in more details with you.

Zimin