re : real options presentation thanks for the comments grant . the presentation is for a couple of external
conferences that vince volunteered me for - vince has ok ' d the content , and
stinson raised exactly the same issues as you . unfortunately i just don ' t
seem to be getting any response from risk whatsoever on the publication of my
article , so these conferences will be the public debut for my real options
notation .
of course the discounting / risk neutrality thing is where the real judgement
sits . when questions arise i ' ll take the line that while research formulates
the models using appropriate derivatives / market based valuation methods , we
work with our rac group which considers the discounting to be associated with
various risks , and chooses these rates appropriately . the notation makes
clear which uncertainties we are exposed to at different stages of the deals ,
which assists in choosing the rates .
in practice i ' m not yet at the stage where originators are using my notation
yet - another reason i can ' t say too much about its actual use at the
conference . i ' m producing various tools for deterministic hydro
optimization , gbm swing option valuation , and deterministic dp optimization
for genset dispatch which people want right now - i ' m working in the
background on the kind of modelling my notation demands . people are getting
to know me as a guy who can solve their immediate problems , and they ' ll be
more likely to listen when i start rolling out the " proper " options - based
models . my notation is currently used only in the specs i ' m writing for the
tools i ' m producing .
i ' ll be turning dale ' s spreadsheet - based power plant spread model into an
american monte carlo tool , which will then be available for inclusion in
other models . i think by the end of the summer the real options theoretical
work will start to bear fruit , one year after i initially proposed the
notation . with the quant it group i ' m co - creating in place , i may yet see
the automated diagramming / pricing tool made real .
thanks also for the pointer to tom halliburton . the use of the lingo
lp / integer package is something i ' ve been presented with for the teesside
plant operation optimizer , rather than something i chose . the perm ( physical
energy risk mgt ) group just got a couple of analysts to hack it together
( including natasha danilochkina ) , then asked me to tidy it up when it didn ' t
work . they are going to use their existing faulty model for now ( to meet
their project deadlines ) , and i ' m sketching out a proper mathematical spec
for the problem .
i ' ve persuaded ( ! ) them that this sort of business - critical system should be
developed properly by research , and they now seem happy to fall into line .
their wilton plant optimizer was developed by one peter morawitz , the guy i
hoped to recruit into research , and they obviously didn ' t realise he was
better than average at quantitative modelling . anyway they now accept that
doing it properly will take months rather than weeks , and i ' ll have a freer
hand in my choice of modelling tool - so a chat with tom would be extremely
valuable .
cheers ,
steve
enron capital is
this an internal enron or external presentation ? if external , i would say it
is just at the limit before sliding into proprietary stuff . perhaps that ' s
why you ' ve neatly almost entirely avoided questions about discounting and
risk - neutrality or lack of it ?
regards ,
grant .
re : real options presentation
thanks for the comments grant . the presentation is for a couple of external
conferences that vince volunteered me for - vince has ok ' d the content , and
stinson raised exactly the same issues as you . unfortunately i just don ' t
seem to be getting any response from risk whatsoever on the publication of my
article , so these conferences will be the public debut for my real options
notation .
of course the discounting / risk neutrality thing is where the real judgement
sits . when questions arise i ' ll take the line that while research formulates
the models using appropriate derivatives / market based valuation methods , we
work with our rac group which considers the discounting to be associated with
various risks , and chooses these rates appropriately . the notation makes
clear which uncertainties we are exposed to at different stages of the deals ,
which assists in choosing the rates .
in practice i ' m not yet at the stage where originators are using my notation
yet - another reason i can ' t say too much about its actual use at the
conference . i ' m producing various tools for deterministic hydro
optimization , gbm swing option valuation , and deterministic dp optimization
for genset dispatch which people want right now - i ' m working in the
background on the kind of modelling my notation demands . people are getting
to know me as a guy who can solve their immediate problems , and they ' ll be
more likely to listen when i start rolling out the " proper " options - based
models . my notation is currently used only in the specs i ' m writing for the
tools i ' m producing .
i ' ll be turning dale ' s spreadsheet - based power plant spread model into an
american monte carlo tool , which will then be available for inclusion in
other models . i think by the end of the summer the real options theoretical
work will start to bear fruit , one year after i initially proposed the
notation . with the quant it group i ' m co - creating in place , i may yet see
the automated diagramming / pricing tool made real .
thanks also for the pointer to tom halliburton . the use of the lingo
lp / integer package is something i ' ve been presented with for the teesside
plant operation optimizer , rather than something i chose . the perm ( physical
energy risk mgt ) group just got a couple of analysts to hack it together
( including natasha danilochkina ) , then asked me to tidy it up when it didn ' t
work . they are going to use their existing faulty model for now ( to meet
their project deadlines ) , and i ' m sketching out a proper mathematical spec
for the problem .
i ' ve persuaded ( ! ) them that this sort of business - critical system should be
developed properly by research , and they now seem happy to fall into line .
their wilton plant optimizer was developed by one peter morawitz , the guy i
hoped to recruit into research , and they obviously didn ' t realise he was
better than average at quantitative modelling . anyway they now accept that
doing it properly will take months rather than weeks , and i ' ll have a freer
hand in my choice of modelling tool - so a chat with tom would be extremely
valuable .
cheers ,
steve
enron capital is
this an internal enron or external presentation ? if external , i would say it
is just at the limit before sliding into proprietary stuff . perhaps that ' s
why you ' ve neatly almost entirely avoided questions about discounting and
risk - neutrality or lack of it ?
regards ,
grant .