Message-ID: <29987297.1075856534916.JavaMail.evans@thyme> Date: Fri, 1 Dec 2000 00:00:00 -0800 (PST) From: vince.kaminski@enron.com To: stinson.gibner@enron.com Subject: Re: Compound Model for Reedy Creek Cc: vince.kaminski@enron.com, alex.huang@enron.com, vasant.shanbhogue@enron.com, berney.aucoin@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: vince.kaminski@enron.com, alex.huang@enron.com, vasant.shanbhogue@enron.com, berney.aucoin@enron.com X-From: Vince J Kaminski X-To: Stinson Gibner X-cc: Vince J Kaminski, Alex Huang, Vasant Shanbhogue, Berney C Aucoin X-bcc: X-Folder: \Vincent_Kaminski_Jun2001_4\Notes Folders\'sent mail X-Origin: Kaminski-V X-FileName: vkamins.nsf Stinson, I think the gamma will flow into V@R. Vince Stinson Gibner 11/30/2000 06:14 PM To: Alex Huang/Corp/Enron@ENRON cc: Vince J Kaminski/HOU/ECT@ECT, Vasant Shanbhogue/HOU/ECT@ECT Subject: Compound Model for Reedy Creek Alex, Paulo and I have continued to look at the model and have come up with a couple of additional changes. 1. The cash flow calculations need to include the overlying option strike payment. Also, Paulo is trying to clarify if the cashflows should be discounted to the valuation date or reported as notional future values. 2. I would suggest trying changing the option valuation from a binomial tree approach to a one-dimensional integration, perhaps using a quadrature method. This may allow us to minimize the size of the delta discontinuities. 3. Edith is supposed to check and see if the theoretical gamma is used for anything. If it is, we will probably need to revisit the gamma calculation since we are not currently including any cross terms for gamma. Thanks, Stinson