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Enron Mail |
Dr Yang,
The RETAIL EAST portfolio needs to use the same methodology as the EAST portfolio and the RETAIL WEST portfolio needs to use the same methodology as the WEST portfolio. I believe that how Stacey wants the vols calculated is as follows. If a deal that uses volatility in its calculation is at a region in the EAST it should use the daily or monthly vols respectively. If a deal is at a west Region, than it should use the blending methodologies used in the WEST portfolio. This will allow deals between the EAST and WEST portfolio to use the correct vols if such a deal were entered. The transmission deals may not explicitly state a time horizon for exercise, but the nature of the deal allows you to make your decision on use of the transmission on a daily basis therefore, I believe transmission deals should always use the daily volatilities. -----Original Message----- From: Yang, Zhiyun Sent: Monday, October 22, 2001 1:46 PM To: White, Stacey W.; Vinson, Donald Wayne; Evans, Casey; Chen, Hai; Postlethwaite, John; Mattox, Michael Cc: Lee, Norman Subject: option volatilities used in portcalc Dear All: Here is a summary of how volatility curves are used in portcalc option evaluation: Rule: 1. IF it is monthly option OR if the expiration date is explicitly specified in the deal entry, Then use monthly volatility 2. IF it is one of the following portfolios: EAST, ENAWEATHER, SIMTRADE, ENACCO, PLANT, SVCE AND it is one of the following instrument type: Option, Spread Option, Basis Option, Index Option Then use daily volatility for daily option, use monthly curve for monthly option Otherwise If it is current month, use daily volatility Otherwise use blend volatility of monthly and daily(intra-month) curves. 3. For Asian strips, basket volatility is used based on monthly weekday and weekend volatility curves. I'd like to point out that as a result of the above rules, 1. for transmission deals, which does not explicitly specify expiration frequency or expiration date, for both East and West portfolios, daily volatility curve is used for current month, blend volatility is used for forward months. 2. Retail East and Retail West behave the same as West portfolio. Please let us know if you need further clarification on how volatility curves are used in portcalc and advice us if any changes should be made. Thank you very much, - Zhiyun
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