fw : west var fyi .
- - - - - - - - - - - - - - - - - - - - - - forwarded by tim belden / hou / ect on 04 / 30 / 2001 07 : 43 am - - - - - - - - - - - - - - - - - - - - - - - - - - -
from : john j lavorato / enron @ enronxgate on 04 / 30 / 2001 09 : 40 am cdt
to : tim belden / hou / ect @ ect , david port / enron @ enronxgate
cc :
subject : fw : west var
tim
you will get stopped out . i talked to david port today because last year we spent a lot of time cleaning up gas var and now we must spend the time fixing power var . however , until its fixed i have no choice but to use the reported numbers .
- - - - - original message - - - - -
from : belden , tim
sent : monday , april 30 , 2001 9 : 19 am
to : lavorato , john ; kitchen , louise ; gorny , vladimir
cc : presto , kevin
subject : west var
the numbers being generated for the west ' s var do not comport with what i believe our risk to be . i think that it may have to do with the correlation across months and across locations . for example , the ltnw book has a grant total of mwh from now through september on - peak and 194 , 000 mwh from now through september off - peak . the var report shows mike with $ 20 million of var - - about $ 16 million of it coming between now and september . we have a total var of $ 30 million , with about $ 20 million between now and september . by my rough calculations , we would have to have the entire curve move roughly $ 100 / mwh in one day for this var to be accurate . that means that once every 20 days the entire summer curve - - peak and off - peak - - would have to move in excess of $ 100 / mwh . i might add that we are short q 4 which i ' m not giving us any credit for as an offset .
i understand that there is a lot of risk on our books . i just don ' t think that it is as much as the var model is spitting out . wierd things happen in the var model and option valuation models due to the interaction of the blending formula on the volatility and the correlations as we approach delivery . we see the same thing with option valuations . we see option model valuations ( e . g . , transmission spread options ) going through the roof when they are trading for fractions of our model valuations in reality . similarly , the var model valuations move up really fast as the summer approaches .
bottom line . i need to know what you want us to do . we are chewing up a lot of var . if we are going to get stopped out i need to know now . i think that it would be a shame to close out of a largely spread position that wouldn ' t necessarily have any practical impact on our real profitability but would make the " model " happy .