Message-ID: <9299081.1075849653699.JavaMail.evans@thyme> Date: Tue, 12 Dec 2000 08:57:00 -0800 (PST) From: john.griffith@enron.com To: colleen.sullivan@enron.com Subject: Transport Cc: zimin.lu@enron.com, greg.couch@enron.com, eric.moon@enron.com, ed.mcmichael@enron.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: zimin.lu@enron.com, greg.couch@enron.com, eric.moon@enron.com, ed.mcmichael@enron.com X-From: John Griffith X-To: Colleen Sullivan X-cc: Zimin Lu, Greg Couch, Eric Moon, Ed McMichael X-bcc: X-Folder: \John_Griffith_Nov2001\Notes Folders\Discussion threads X-Origin: GRIFFITH-J X-FileName: jgriffit.nsf Hey Colleen, how are thing going? I haven't talked to you in a while. I was trying to tie out a transportation deal in the books with my transport model. I found that the transportation spreadsheet that the books are being closed out with was valuing extrinsic value over what my model valued it. I reconciled the differences and the main difference was due to the blending of the volatilities. I brought this problem up back in October of this year. Do you remember? When I talked to Greg Couch today, those changes were not made. I think that it is an issue with all the transportation deals. The problem is related to the number of days that is used to weight the daily/omicron volatility. Basically, transportation is a daily spread option and if you look at a month like November for instance, you have 30 different daily options. If you were to look at the number of days that the daily/omicron volatility should be used you would have the first option with 1 day of daily vol, the second with 2 days of daily vol, the third with 3 days of daily vol and so on and so on. The average number of days that should be used to weight the daily/omicron volatility is 15 or the number of days in each particular month divided by 2. The transportation spreadsheet is weighting that volatility with the total number of days in the month. This usually overstates the extrinsic value since that the daily/omicron volatility is usually higher than the monthly volatility. Please let me know what you would like me to do. I have a call into Zimin to make sure that my logic is correct. Thanks. John Griffith x.36247