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---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 04/21/2000
04:49 PM --------------------------- "Chris Strickland" <chris@lacima.co.uk< on 04/20/2000 04:32:32 AM Please respond to "Chris Strickland" <chris@lacima.co.uk< To: "VinceJKaminski" <Vince.J.Kaminski@enron.com< cc: "Julie" <julie@lacima.co.uk< Subject: Book and EPRM articles Hi Vince, ? I was wondering how the chapter of the book is coming along??! Do you want me to make 'noise' tomorrow or to leave you until after Easter? ? Until then, I wanted to discuss with you an idea that Les and I have been throwing around concerning writing a series of articles for Risk's 'Energy and Power Risk Management'. We would like to propose to them?that we would write an article a month, covering practical issues dealing with energy modelling and energy derivative pricing and risk management. The articles would be based upon sections of the book so as to promote the book, and to reduce the effort/time involved by using?already produced material. We would like to cover some very practical topics, but we?won't be giving too much away as the articles are only 1 or 2 pages long. ? Each article would be of?the form; ? - introduce?the concept - give an example using real data - discuss the problem with a case study? - provide a discussion - sum up ? I've included a list of potential articles at the end of this e-mail. For example, for the first one, "Estimation of mean reversion in spot energy prices", we would introduce the concept of mean reversion,?show a graph of an equity index and an energy price?for illustration of our point, estimate the parameter for a series of energies over a number of seasons, and finally, discuss the results. ? We?are wondering if you would like to be involved in this project? Your involvement needn't take much time (although it is up to you). The kind of input we are hoping for (again, this is up to you) is that you?would?review the list of articles and provide?suggestions of additions or deletions, suggest reasonable data sets or case studies to work with on each article, and then to run your eye over "near finished" articles, which?we would supply to you for your?practical experience?input.? Would something like this interest you? If it did, we would try to sell Risk on making it a regular monthly "feature" of EPRM, authored by all three of us. ? We are hoping to present our proposal to Risk in the next few weeks, so please let us know if you are interested. ? Best regards. ? Chris. ? ? Potental EPRM articles; ? 1- Estimation of mean reversion in spot energy prices (with parameters estimated for oil, gas, and electricity data over different seasons) ? 2- Estimation of jumps in spot energy prices (with parameters estimated for oil, gas, and electricity data over different seasons) ? 3- Simulating a mean reverting spot price process for pricing energy derivatives (with case study applied to an Asian option on oil) ? 4- Simulating a jump / diffusion spot price process for pricing energy derivatives (with case study applied to a Swaption on natural gas) ? 5- Simulating a mean reverting jump / diffusion spot price process for pricing energy derivatives (with case study applied to hourly caps on spot electricity) ? 6- An analytical pricing formula for pricing caps in a mean reverting spot price model (with example applied to a cap on natural gas fitting the Forward curve and volatlity structure) ? 7- using a tree consistent with the forward curve and vols for pricing swing options ? 8- implying a single?factor vol function from market Futures option prices and variation of parameters thru time ? 9- adding jump volatility to the tree ? 10- An analytical pricing formula for pricing caps in a multi-factor forward curve model(with example applied to the same cap on natural gas and a discussion on the differences between the two approaches) ? 11- Estimating volatility functions for multi-factor forward curve models (with estimates of oil data over different periods) ? 12- Estimating volatility functions for multi-factor forward curve model from market option prices ? 13- pricing swing option in multi factor model using tree for exercise strategy ? 14- comparison of VaR methodoligies applied to the same energy derivativ portfolio. ?
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