changes in option valuation in enpower - - - - - - - - - - - - - - - - - - - - - - forwarded by zimin lu / hou / ect on 03 / 21 / 2001 08 : 33 am
- - - - - - - - - - - - - - - - - - - - - - - - - - -
from : harry arora / enron @ enronxgate on 03 / 21 / 2001 07 : 26 am
to : sanjay gupta / enron @ enronxgate , steve nat / enron @ enronxgate
cc : zimin lu / hou / ect @ ect
subject : changes in option valuation in enpower
sanjay
wanted to confirm the changes to the option valuations in the enpower we
discussed yesterday evening .
1 . currently the trader volatility inputs are the daily vol curve and the
intra - monthly vol curve . the monthly options get marked directly to the
monthly curve ( plus the smile ) and the monthlies get marked to a time blend
of monthly and intra - month vol ( plus the skew ) .
we want to change the valuation ( for the eastern books ) so that the dailies
get marked to the intramonth curve ( which we want to call the daily curve )
and the monthly gets marked to the monthly curved . there will be not vol
blending done by the enpower system for the daily and monthly option
valuations . we want to make this change very soon ( by early next week )
2 . currently there exists one smile for every region , which is specified in
terms of volatility additive for specified dollar difference from the
underlying . since different months in a region can trade in a large range
( $ 35 - $ 150 ) - this cannot result in accurate skew for all terms . what we
need is a system which has skew per month .
we suggest , for the short term , the skew should apply only to the summer
daily expiration options . we need to make this change by early next week .
however , we need to start modifing the system so that for every region we
can enter a grid which has a percentage scale and specifies the skew
differently for each month . research , has implemented this in our pricing
model , and we would like this grid to be input into the valuation system . i
am enclosing the pricing model ( which we both discussed yesterday ) for
reference . this model is however , work under construction , so pls call alex
huang for clarifications .
3 . the vol input system is complex and confusing .
i would very much be interested in moving to a direct database interface ,
which accomodates the skew inputs per region as in . we should implement a
ui which can input the dailies and monthlies at the moneys and the skew grid
directly - so that we do not need to go through multiple iterations .
i am very much interested in what we currently are releasing in delphi and
would love an early implementation for options .
on all these issues , i am speaking for the east desk . i am going to touch
base with west guys and see if they are on board with these changes .
thanks
harry
changes in option valuation in enpower
- - - - - - - - - - - - - - - - - - - - - - forwarded by zimin lu / hou / ect on 03 / 21 / 2001 08 : 33 am
- - - - - - - - - - - - - - - - - - - - - - - - - - -
from : harry arora / enron @ enronxgate on 03 / 21 / 2001 07 : 26 am
to : sanjay gupta / enron @ enronxgate , steve nat / enron @ enronxgate
cc : zimin lu / hou / ect @ ect
subject : changes in option valuation in enpower
sanjay
wanted to confirm the changes to the option valuations in the enpower we
discussed yesterday evening .
1 . currently the trader volatility inputs are the daily vol curve and the
intra - monthly vol curve . the monthly options get marked directly to the
monthly curve ( plus the smile ) and the monthlies get marked to a time blend
of monthly and intra - month vol ( plus the skew ) .
we want to change the valuation ( for the eastern books ) so that the dailies
get marked to the intramonth curve ( which we want to call the daily curve )
and the monthly gets marked to the monthly curved . there will be not vol
blending done by the enpower system for the daily and monthly option
valuations . we want to make this change very soon ( by early next week )
2 . currently there exists one smile for every region , which is specified in
terms of volatility additive for specified dollar difference from the
underlying . since different months in a region can trade in a large range
( $ 35 - $ 150 ) - this cannot result in accurate skew for all terms . what we
need is a system which has skew per month .
we suggest , for the short term , the skew should apply only to the summer
daily expiration options . we need to make this change by early next week .
however , we need to start modifing the system so that for every region we
can enter a grid which has a percentage scale and specifies the skew
differently for each month . research , has implemented this in our pricing
model , and we would like this grid to be input into the valuation system . i
am enclosing the pricing model ( which we both discussed yesterday ) for
reference . this model is however , work under construction , so pls call alex
huang for clarifications .
3 . the vol input system is complex and confusing .
i would very much be interested in moving to a direct database interface ,
which accomodates the skew inputs per region as in . we should implement a
ui which can input the dailies and monthlies at the moneys and the skew grid
directly - so that we do not need to go through multiple iterations .
i am very much interested in what we currently are releasing in delphi and
would love an early implementation for options .
on all these issues , i am speaking for the east desk . i am going to touch
base with west guys and see if they are on board with these changes .
thanks
harry