Subject: Re: Vega Issue - Vol. Smile
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Mon, 9 Apr 2001 11:40:00 -0700 (PDT)

Jeremy,

John and I really need to meet Tuesday for about 30min-1hr with you Dave and 
Sanjeev, so that we can better understand how the options are being calc'd in 
the system.  We thought we had a pretty good idea after talking on Friday, 
but tonight we see that we don't.  John is about one half million dollars off 
every night in his prediction of the P/L for Mike's book, and we're afraid 
our position might not be correct as well.

Please give me a call.

Thanks,

Errol, X5-8274

From: Jeremy Wong/ENRON@enronXgate on 04/09/2001 06:18 PM
To: John Griffith/Corp/Enron@Enron
cc: Errol McLaughlin/Corp/Enron@ENRON, Dave Wei/ENRON@enronXgate 

Subject: Vega Issue - Vol. Smile

John:

The reason for the large Vega numbers on the TopPage report, while there were 
no corresponding changes in the Volatility curves, is due to the change in 
the mid. price for the current day versus the prior day. The corresponding 
volatility skews that are added to the vols. for the 2 days is causing the 
large vega numbers.

For example, for deal number QV5087.2 (exp. date 01-Jan-2002):

  Current Day  Prior Day
Mid. Price 5.885   5.772
Strike Price 3.5   3.5
Mid - Strike 2.385   2.272
Vol.  0.555   0.555
Vol. Skew 0.03816   0.03635
Actual Vol. 0.59316   0.59135

Option value for prior day using current day's vol. =  7,616,935  
Option value for prior day using prior day's vol.     =  7,547,238 
Vega                =  69,697

Thank you,
Jeremy
x3-0573