Message-ID: <2683538.1075863438776.JavaMail.evans@thyme> Date: Mon, 20 Aug 2001 06:21:17 -0700 (PDT) From: j.kaminski@enron.com To: tanya.tamarchenko@enron.com, rabi.de@enron.com Subject: FW: The first document for audit Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Kaminski, Vince J X-To: Tamarchenko, Tanya , De, Rabi X-cc: X-bcc: X-Folder: \VKAMINS (Non-Privileged)\Kaminski, Vince J\Sent Items X-Origin: Kaminski-V X-FileName: VKAMINS (Non-Privileged).pst FYI Vince -----Original Message----- From: J D Duffie @ENRON [mailto:IMCEANOTES-J+20D+20Duffie+20+3Cduffie+40smtp1+2Estanford+2Eedu+3E+40ENRON@ENRON.com] Sent: Sunday, August 19, 2001 12:33 PM To: Kaminski, Vince J Cc: duffie@smtp1.stanford.edu Subject: Re: The first document for audit Vince: I read the relibaility-based VAR method document with interest. Here are some comments: 1. The document falls short of describing how to use the method in practice, but rather gives some general motivation. I am confident that I myself could not develop an algorithm based on this document, unless all of the derivative valuation functions are explicit (and rather nice) functions with explicit derivatives of the underlying variables, in which case the VAR problem is not so hard in any case, as Monte Carlo is very effective in this case. (My comment here is critical of exposition. I do not suggest that the proposed method is weak!) 2. The remark (p. 2) that my paper with Jun Pan addresses only normal returns is not correct. The main point of our paper was to allow for jumps, including fat tails and skewness. The comment that we rely on delta-gamma is a good criticism,and the main potential advantage of the reliability approach, if it works in practical cases. 3. There is a typo at page 2, at 9 lines from the bottom, where I presume g(T(u)), not g(T(x)) 4. There is a missing `we' on page 5, 9 lines from the bottom. 5. The remark on CPU time (page 7) does not mention what machine was used. 6. The example (page 8) does not really have much non-normality. Skewness=0, and kurtosis (4) (is this excess kurtosis?) are not much compared to most practical cases, in which kurtosis is an extra order of magnitude, with lots of skewness. Overall, the paper piqued my curiosity a lot, and left me wanting more clarity, and a cookbook. I hope `events' at Enron have not made things difficult for you. I will later bill you for one hour, if that is OK. Warmest personal regards, Darrell > X-MimeOLE: Produced By Microsoft Exchange V6.0.4418.65 > content-class: urn:content-classes:message > MIME-Version: 1.0 > Subject: The first document for audit > Date: Mon, 16 Jul 2001 12:47:45 -0500 > X-MS-Has-Attach: > X-MS-TNEF-Correlator: > Thread-Topic: The first document for audit > Thread-Index: AcEOH2t+YrCeSfbQQ9uW1MfwNSwcgg== > From: "Kaminski, Vince J" > To: > Cc: > X-OriginalArrivalTime: 16 Jul 2001 17:48:09.0130 (UTC) FILETIME=[79ADE8A0:01C10E1F] > X-UIDL: 1c3d3038b819e9d553dd6b2f57734529 > > Darrell, > > I am sending you the first document for review. It's a new algorithm > invented by Rabi De and Tanya. > > The credit paper has been written but it needs more work > before we can send it to you. > > I think you will enjoy the document I am attaching. > > > Vince > > > <> _____________________________________________ Darrell Duffie mail GSB Stanford CA 94305-5015 USA phone 650 723 1976 fax 650 725 7979 email duffie@stanford.edu web http://www.stanford.edu/~duffie/ _____________________________________________