Message-ID: <10565756.1075856602276.JavaMail.evans@thyme>
Date: Mon, 26 Mar 2001 07:08:00 -0800 (PST)
From: tanya.tamarchenko@enron.com
To: william.bradford@enron.com, mark.ruane@enron.com
Subject: RE: forward prices simulations in the Credit Reserve Model
Cc: naveen.andrews@enron.com, tanya.rohauer@enron.com, debbie.brackett@enron.com, 
	rabi.de@enron.com, wenyao.jia@enron.com, vince.kaminski@enron.com
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Bill and Mark,
the figure below shows you what happens when we simulate forward prices using 
current methodology of our Credit Reserve Model.
The time scale on this figure goes from 0 to 30 years. I started with $5.2 
gas prices at time 0 and used the NG forward volatility curve which
has 50% volatilities in the front and 13.5% vols for long-term contracts. You 
can see from the figure, that, for example, at 30 years horizon
the price will be more than $13.4 with probability 5% but less than $22.1 
with probability 99%. The corresponding lower bounds are
$1.17 and $0.71.

Tanya




From: William S Bradford/ENRON@enronXgate on 03/26/2001 11:22 AM
To: Mark Ruane/ENRON@enronXgate, Naveen Andrews/ENRON@enronXgate, Tanya 
Rohauer/ENRON@enronXgate, Debbie R Brackett/HOU/ECT@ECT, Tanya 
Tamarchenko/HOU/ECT@ECT, Rabi De/NA/Enron@ENRON, Wenyao Jia/ENRON@enronXgate
cc:  
Subject: RE: GBM vs Reversion

Both seem to provide fairly unrealistic values.  $50 gas over the term seems 
improbable, however, a $6 gas peak does not represent capture all potential 
price movement at 99% confience interval.

What were your assumptions on price curves, volatilty curves, and trend 
reversion?

Bill


 -----Original Message-----
From:  Ruane, Mark  
Sent: Monday, March 26, 2001 11:11 AM
To: Bradford, William S.; Andrews, Naveen; Rohauer, Tanya; Brackett, Debbie; 
Tamarchenko, Tanya; De, Rabi; Jia, Winston
Subject: GBM vs Reversion

A quick example of the impact of using GBM based simulation:  Based on a five 
year swap, the expected losses are 18% higher as a result of GBM.  Attached 
chart shows the relative long-term gas prices under both processes. << File: 
gbmcht.xls >> 
Mark