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Enron Mail |
This is about Enron movie trading business where we are a market maker for
trading future of a movie's gross box office receipt. Rich sent to many people a writing explaining his movie trading idea and asked us to provide some feedback. I think the idea (see below) might be applicable to other parts of Enron. We can call it "Dynamic bid-ask price process". In fact, we can set that the bidding period is closed when no new bid is submitted to the system within a specified amount of time. The final (clearing) bid and ask prices are just the last "tentative" price shown to the public before the bidding period ends. (So the customers can see the final price before the market close and can revise their bids if they wish.) I think this method is suitable for illiquid products to be traded via EnronOnline.com. -Chonawee ---------------------- Forwarded by Chonawee Supatgiat/Corp/Enron on 04/24/2001 07:48 PM --------------------------- Chonawee Supatgiat 04/24/2001 07:40 PM To: Richard DiMichele/Enron Communications@Enron Communications cc: Chonawee Supatgiat/Corp/Enron@ENRON, Cynthia Harkness/Enron Communications@Enron Communications, Greg Wolfe/HOU/ECT@ECT, James Ginty/Enron Communications@Enron Communications, Jim Fallon/Enron Communications@Enron Communications, Kelly Kimberly/Enron Communications@Enron Communications, Kevin Howard/Enron Communications@Enron Communications, Key Kasravi/Enron Communications@Enron Communications, Kristin Albrecht/Enron Communications@Enron Communications, Kristina Mordaunt/Enron Communications@Enron Communications, Martin Lin/Contractor/Enron Communications@Enron Communications, Paul Racicot/Enron Communications@Enron Communications, Zachary McCarroll/Enron Communications@Enron Communications, Martin Lin/Contractor/Enron Communications@Enron Communications Subject: calculating bid-ask prices I think we should let the price float with the market instead of trying to forecast it. Otherwise, if our forecast is not consistence with the market, we may have an imbalance in the bid-ask orders and we may end up taking some positions. You know, as Russ and Martin pointed out, we cannot fight with the studio and exhibitors because they have inside information and can game the price easily. One way to ensure the balance of the bid-ask orders is to embed an exchange system inside our bid-ask prices front end. Each week, we have a trading period. During the period, instead of posting bid-ask prices, we post "tentative" bid-ask prices, then we ask our customers to submit their acceptable buying or selling price. These "tentative" bid-ask prices get updated and are shown to the public. Of course, customers can revise/withdraw their bids anytime during the trading period. At the end of the period, we calculate and post the final bid and ask prices. The seller who submits lower selling price than our final bid price gets paid at the bid price. The buyer who submits higher buying price than our final ask price pays at the ask price. Next week, we repeat the same process. This way, we can manage our positions easily and we can also behave like a broker where we don't take any position at all. We make profit from those bid-ask spread. We don't have to worry about forecasting accuracy and insiders' trading because we don't have to take any position. Let the market be the one who decides the price. If we maintain our net position as zero, at the end, when all the actual gross box office numbers are reported in those publications, our customers with open long/short positions are perfectly matched. Using the mark-to-market charge can reduce credit risk. Thanks, -Chonawee ---------------------- Forwarded by Chonawee Supatgiat/Corp/Enron on 04/24/2001 07:24 PM --------------------------- Chonawee Supatgiat 04/20/2001 04:31 PM To: Richard DiMichele/Enron Communications@Enron Communications, Key Kasravi/Enron Communications@Enron Communications cc: Martin Lin/Contractor/Enron Communications@Enron Communications Subject: some more input Hi Rich and Key, Again I think your idea is very good. I think that we, as a market maker, can reduce our credit risk (risk of default) if we do the "mark-to-market" charging. That is, each week when we release a new expected value of the gross box office receipt, we balance all the opening positions the same way as in a regular future market. This way, we can give margin calls to the couterparties who are expected to owe us a lots of money. In the last paragraph, I think the gross box office can also be determined from the market itself (i.e., if there are lots of buyers, our offer price should go up.) We can offer other derivative products such as options as well. -Chonawee
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