factor loadings fyi . . jeff
- - - - - - - - - - - - - - - - - - - - - - forwarded by jeffrey a shankman / hou / ect on 06 / 22 / 2000
07 : 47 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : ted murphy
06 / 21 / 2000 05 : 43 pm
to : rick buy , john j lavorato / corp / enron @ enron , jeffrey a
shankman / hou / ect @ ect , mark frevert / na / enron @ enron
cc :
subject : factor loadings
i hope that the following clears up some of the confusion regarding the
above - captioned process .
factor loadings are an input to value - at - risk ( var ) . generally , you can
consider them the determinants of relationships between curves , and points on
curves based on trader inputs . these pertain to all curves not just north
american natural gas . there is a specific program which calculates these
relationships which requires a considerable amount of processing time ( 3
hours per run ) as well as another few man - days to evaluate the results .
there is no " ideal " or recommended period in which these must be updated .
more frequent is " better " . given the amount of time it takes to refresh , it
was " agreed " a long time ago amongst rac , research , it and operations that
it would be done every 2 weeks . no commercial input was received . the roles
were to be simple as they are with most roles in and around var and other
risk management controls :
research specifies the math
it codes the program
operations runs the program
rac evaluates the results
the process has been run every two weeks on the second thursday of every
month since february ( as it had been prior ) and rac has rejected the results
because the results did not reflect the underlying math because of the
complexity of the math and the continuing addition of new products and
curves . this created the need to recode the application from scratch . rac
continued to agitate to get this done , particularly knowing that the pressure
on the efficacy of var would be questioned as we went into the volatile
period of 2000 ( e - mails from rudi zipter available upon request ) . the new
code was implemented last thursday and the results were accepted resulting in
an approximate 10 % difference in var .
rac had requested that the code be re - written on 6 / 10 / 99 @ 7 : 44 am with a
target completion date of 8 / 2 / 99 . this was discussed and accepted by
phillipe bibi on 6 / 17 / 99 in a meeting in his conference room with rick buy ,
dan bruce , jonathon le , ted murphy , bill bradford , debbie brackett and rudi
zipter along with the rest of our task list .
we have resolved that the process will continue as stated and will
communicate to you the results .
there are dozens of other processes that are important to the calculation and
interpretation of var that need to be implemented , enhanced , improved or
rewritten altogether . for example , the jump - diffusion factors for north
american power have not been refreshed in 2000 . the prioirty is dependent on
the level of precision required .
i will provide a comprehensive list of those processes in due course .
ted
factor loadings
fyi . . jeff
- - - - - - - - - - - - - - - - - - - - - - forwarded by jeffrey a shankman / hou / ect on 06 / 22 / 2000
07 : 47 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : ted murphy
06 / 21 / 2000 05 : 43 pm
to : rick buy , john j lavorato / corp / enron @ enron , jeffrey a
shankman / hou / ect @ ect , mark frevert / na / enron @ enron
cc :
subject : factor loadings
i hope that the following clears up some of the confusion regarding the
above - captioned process .
factor loadings are an input to value - at - risk ( var ) . generally , you can
consider them the determinants of relationships between curves , and points on
curves based on trader inputs . these pertain to all curves not just north
american natural gas . there is a specific program which calculates these
relationships which requires a considerable amount of processing time ( 3
hours per run ) as well as another few man - days to evaluate the results .
there is no " ideal " or recommended period in which these must be updated .
more frequent is " better " . given the amount of time it takes to refresh , it
was " agreed " a long time ago amongst rac , research , it and operations that
it would be done every 2 weeks . no commercial input was received . the roles
were to be simple as they are with most roles in and around var and other
risk management controls :
research specifies the math
it codes the program
operations runs the program
rac evaluates the results
the process has been run every two weeks on the second thursday of every
month since february ( as it had been prior ) and rac has rejected the results
because the results did not reflect the underlying math because of the
complexity of the math and the continuing addition of new products and
curves . this created the need to recode the application from scratch . rac
continued to agitate to get this done , particularly knowing that the pressure
on the efficacy of var would be questioned as we went into the volatile
period of 2000 ( e - mails from rudi zipter available upon request ) . the new
code was implemented last thursday and the results were accepted resulting in
an approximate 10 % difference in var .
rac had requested that the code be re - written on 6 / 10 / 99 @ 7 : 44 am with a
target completion date of 8 / 2 / 99 . this was discussed and accepted by
phillipe bibi on 6 / 17 / 99 in a meeting in his conference room with rick buy ,
dan bruce , jonathon le , ted murphy , bill bradford , debbie brackett and rudi
zipter along with the rest of our task list .
we have resolved that the process will continue as stated and will
communicate to you the results .
there are dozens of other processes that are important to the calculation and
interpretation of var that need to be implemented , enhanced , improved or
rewritten altogether . for example , the jump - diffusion factors for north
american power have not been refreshed in 2000 . the prioirty is dependent on
the level of precision required .
i will provide a comprehensive list of those processes in due course .
ted