calculating bid - ask prices this is about enron movie trading business where we are a market maker for trading future of a movie ' s gross box office receipt . rich sent to many people a writing explaining his movie trading idea and asked us to provide some feedback .
i think the idea ( see below ) might be applicable to other parts of enron . we can call it " dynamic bid - ask price process " .
in fact , we can set that the bidding period is closed when no new bid is submitted to the system within a specified amount of time . the final ( clearing ) bid and ask prices are just the last " tentative " price shown to the public before the bidding period ends . ( so the customers can see the final price before the market close and can revise their bids if they wish . )
i think this method is suitable for illiquid products to be traded via enrononline . com .
- chonawee
- - - - - - - - - - - - - - - - - - - - - - forwarded by chonawee supatgiat / corp / enron on 04 / 24 / 2001 07 : 48 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
chonawee supatgiat
04 / 24 / 2001 07 : 40 pm
to : richard dimichele / enron communications @ enron communications
cc : chonawee supatgiat / corp / enron @ enron , cynthia harkness / enron communications @ enron communications , greg wolfe / hou / ect @ ect , james ginty / enron communications @ enron communications , jim fallon / enron communications @ enron communications , kelly kimberly / enron communications @ enron communications , kevin howard / enron communications @ enron communications , key kasravi / enron communications @ enron communications , kristin albrecht / enron communications @ enron communications , kristina mordaunt / enron communications @ enron communications , martin lin / contractor / enron communications @ enron communications , paul racicot / enron communications @ enron communications , zachary mccarroll / enron communications @ enron communications , martin lin / contractor / enron communications @ enron communications
subject : calculating bid - ask prices
i think we should let the price float with the market instead of trying to forecast it . otherwise , if our forecast is not consistence with the market , we may have an imbalance in the bid - ask orders and we may end up taking some positions . you know , as russ and martin pointed out , we cannot fight with the studio and exhibitors because they have inside information and can game the price easily .
one way to ensure the balance of the bid - ask orders is to embed an exchange system inside our bid - ask prices front end . each week , we have a trading period . during the period , instead of posting bid - ask prices , we post " tentative " bid - ask prices , then we ask our customers to submit their acceptable buying or selling price . these " tentative " bid - ask prices get updated and are shown to the public . of course , customers can revise / withdraw their bids anytime during the trading period . at the end of the period , we calculate and post the final bid and ask prices . the seller who submits lower selling price than our final bid price gets paid at the bid price . the buyer who submits higher buying price than our final ask price pays at the ask price . next week , we repeat the same process .
this way , we can manage our positions easily and we can also behave like a broker where we don ' t take any position at all . we make profit from those bid - ask spread . we don ' t have to worry about forecasting accuracy and insiders ' trading because we don ' t have to take any position . let the market be the one who decides the price .
if we maintain our net position as zero , at the end , when all the actual gross box office numbers are reported in those publications , our customers with open long / short positions are perfectly matched . using the mark - to - market charge can reduce credit risk .
thanks ,
- chonawee
- - - - - - - - - - - - - - - - - - - - - - forwarded by chonawee supatgiat / corp / enron on 04 / 24 / 2001 07 : 24 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
chonawee supatgiat
04 / 20 / 2001 04 : 31 pm
to : richard dimichele / enron communications @ enron communications , key kasravi / enron communications @ enron communications
cc : martin lin / contractor / enron communications @ enron communications
subject : some more input
hi rich and key ,
again i think your idea is very good . i think that we , as a market maker , can reduce our credit risk ( risk of default ) if we do the " mark - to - market " charging . that is , each week when we release a new expected value of the gross box office receipt , we balance all the opening positions the same way as in a regular future market . this way , we can give margin calls to the couterparties who are expected to owe us a lots of money .
in the last paragraph , i think the gross box office can also be determined from the market itself ( i . e . , if there are lots of buyers , our offer price should go up . )
we can offer other derivative products such as options as well .
- chonawee
calculating bid - ask prices
this is about enron movie trading business where we are a market maker for trading future of a movie ' s gross box office receipt . rich sent to many people a writing explaining his movie trading idea and asked us to provide some feedback .
i think the idea ( see below ) might be applicable to other parts of enron . we can call it " dynamic bid - ask price process " .
in fact , we can set that the bidding period is closed when no new bid is submitted to the system within a specified amount of time . the final ( clearing ) bid and ask prices are just the last " tentative " price shown to the public before the bidding period ends . ( so the customers can see the final price before the market close and can revise their bids if they wish . )
i think this method is suitable for illiquid products to be traded via enrononline . com .
- chonawee
- - - - - - - - - - - - - - - - - - - - - - forwarded by chonawee supatgiat / corp / enron on 04 / 24 / 2001 07 : 48 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
chonawee supatgiat
04 / 24 / 2001 07 : 40 pm
to : richard dimichele / enron communications @ enron communications
cc : chonawee supatgiat / corp / enron @ enron , cynthia harkness / enron communications @ enron communications , greg wolfe / hou / ect @ ect , james ginty / enron communications @ enron communications , jim fallon / enron communications @ enron communications , kelly kimberly / enron communications @ enron communications , kevin howard / enron communications @ enron communications , key kasravi / enron communications @ enron communications , kristin albrecht / enron communications @ enron communications , kristina mordaunt / enron communications @ enron communications , martin lin / contractor / enron communications @ enron communications , paul racicot / enron communications @ enron communications , zachary mccarroll / enron communications @ enron communications , martin lin / contractor / enron communications @ enron communications
subject : calculating bid - ask prices
i think we should let the price float with the market instead of trying to forecast it . otherwise , if our forecast is not consistence with the market , we may have an imbalance in the bid - ask orders and we may end up taking some positions . you know , as russ and martin pointed out , we cannot fight with the studio and exhibitors because they have inside information and can game the price easily .
one way to ensure the balance of the bid - ask orders is to embed an exchange system inside our bid - ask prices front end . each week , we have a trading period . during the period , instead of posting bid - ask prices , we post " tentative " bid - ask prices , then we ask our customers to submit their acceptable buying or selling price . these " tentative " bid - ask prices get updated and are shown to the public . of course , customers can revise / withdraw their bids anytime during the trading period . at the end of the period , we calculate and post the final bid and ask prices . the seller who submits lower selling price than our final bid price gets paid at the bid price . the buyer who submits higher buying price than our final ask price pays at the ask price . next week , we repeat the same process .
this way , we can manage our positions easily and we can also behave like a broker where we don ' t take any position at all . we make profit from those bid - ask spread . we don ' t have to worry about forecasting accuracy and insiders ' trading because we don ' t have to take any position . let the market be the one who decides the price .
if we maintain our net position as zero , at the end , when all the actual gross box office numbers are reported in those publications , our customers with open long / short positions are perfectly matched . using the mark - to - market charge can reduce credit risk .
thanks ,
- chonawee
- - - - - - - - - - - - - - - - - - - - - - forwarded by chonawee supatgiat / corp / enron on 04 / 24 / 2001 07 : 24 pm - - - - - - - - - - - - - - - - - - - - - - - - - - -
chonawee supatgiat
04 / 20 / 2001 04 : 31 pm
to : richard dimichele / enron communications @ enron communications , key kasravi / enron communications @ enron communications
cc : martin lin / contractor / enron communications @ enron communications
subject : some more input
hi rich and key ,
again i think your idea is very good . i think that we , as a market maker , can reduce our credit risk ( risk of default ) if we do the " mark - to - market " charging . that is , each week when we release a new expected value of the gross box office receipt , we balance all the opening positions the same way as in a regular future market . this way , we can give margin calls to the couterparties who are expected to owe us a lots of money .
in the last paragraph , i think the gross box office can also be determined from the market itself ( i . e . , if there are lots of buyers , our offer price should go up . )
we can offer other derivative products such as options as well .
- chonawee