|
|
Enron Mail |
Gentleman:
The ERMS system, as you know, has an excellent capability for decomposing option P&L into the following components: new deals curve shift gamma vega theta rho drift 2nd order adjustments What i dont understand is the gamma component which is reported in dollars. The unit of measure suggests that incremental changes in a contract position is being associated with specific prices. These prices are the effective buy or sell prices associated with the dynamic delta position. Stated differently, the standard taylor expansion has incorporated a price variable in such a way as to convert the unit of measure from gamma's standard contract count to total gamma dolalrs. This is something I dont understand. To date, inquiries to the risk management accounting group has further revealed that the gamma component of P&L is not well understood. This is what concerns me: Bridgeline has 2 books with option exposures (NYMEX and Gas Daily). Both books dynamically hedged its positions during yesterdays large price move and, through anticipitory hedging in advance or during the large price move, secured sufficient coverage to neutralize expected changes in delta. However, our P&L from our underlying position did not offset our gamma P&L. Consequently, I have to ask WHY? Im hoping that a brief look at the why gamma dollars are calculated may reveal something which will better guide our hedging decisions. Any help is appreciated
|