Inflation Model Review - Final Version

---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 10/27/2000
04:48 PM ---------------------------

Rodrigo Lamas
10/24/2000 12:17 PM
To: David Port/Market Risk/Corp/Enron@ENRON, Vince J Kaminski/HOU/ECT@ECT,
Anjam Ahmad/LON/ECT@ECT
cc: Zimin Lu/HOU/ECT@ECT, Steven Leppard/LON/ECT@ECT, Oliver
Gaylard/LON/ECT@ECT, Suzanne Bain/LON/ECT@ECT, Bjorn Hagelmann/HOU/ECT@ECT
Subject: Inflation Model Review - Final Version

This morning a draft of RAC's Inflation Model Review was discussed with Anjam.

All points as presented in the draft were agreed upon.

Also, four new points were amended as suggested by Anjam:

The RPI short-term model could be improved by a combination of the
information available from the GILTS and RPI Swaps market.
Add: "This is an issue across all Enron's econometric models." to section
PLLU and DZCV Short-term, First Point.
To implement some of the suggestions requires additional statistical and
programming resources.
Additionnal human resources with advanced econometric modelling skills are
required given the current workload of the european research team.

Please find the final version attached.

Please note that the short term solution has been to freeze the curve.

The medium to long term solution involves futher research towards a sounder
and more efficient model.
Given the current workload of the European Research Group, it is necessary to
hire a new member of staff with strong economics and econometrics background
to address this issue properly.

RAC will communicate to the Financial Trading Group and Risk Management the
actions to take as the curve will be frozen.

Thanks,

Rodrigo