Message-ID: <4655425.1075858763886.JavaMail.evans@thyme>
Date: Mon, 22 Oct 2001 11:46:22 -0700 (PDT)
From: zhiyun.yang@enron.com
To: w..white@enron.com, wayne.vinson@enron.com, casey.evans@enron.com, 
	hai.chen@enron.com, john.postlethwaite@enron.com, 
	michael.mattox@enron.com
Subject: option volatilities used in portcalc
Cc: norman.lee@enron.com
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Dear All:

  Here is a summary of how volatility curves are used in portcalc option evaluation:

Rule:

1.  IF it is monthly option OR if the expiration date is explicitly specified in the deal entry,
     Then use monthly volatility 

2.  IF it is one of the following portfolios: EAST, ENAWEATHER, SIMTRADE, ENACCO, PLANT, SVCE AND
         it is one of the following instrument type: Option, Spread Option, Basis Option, Index Option
    Then
         use daily volatility for daily option, use monthly curve for monthly option

   Otherwise
      If it is current month,  use daily volatility
      Otherwise use blend volatility of monthly and daily(intra-month) curves.

3. For Asian strips, basket volatility is used based on monthly weekday and weekend volatility curves.

I'd like to point out that as a result of the above rules, 

1. for transmission deals, which does not explicitly specify expiration frequency or expiration date, for both East and West portfolios, daily volatility curve is used for current month, blend volatility is used for forward months.

2. Retail East and Retail West behave the same as West portfolio.

Please let us know if you need further clarification on how volatility curves are used in portcalc and advice us if any changes should be made.

Thank you very much,

- Zhiyun