Ethylene Margin Collar Model

Dear All:

Let us meet early this afternoon.

Here is the overview of the model:

1)The Ethylene margin collars are priced using Asian Spread option.
The forward curve and volatility curve are provided by the desk.
The correlation between the Ethylene and Ethylene cost starts from the
historical spot correlation 50% and grows with the maturity.

2) The overall 40MM payout cap is modeled sepereately.

I fitted the historical spread ( 10 years data ) to a mean reverting model
with stronger mean reverting strength on the floor side. The model
produces
trajectories that are statistically simular to the historical data.

Then the expected payoff is computed through simulation.

At the meeting we will discuss the assumptions and present the results.

Zimin