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Enron Mail |
Tanya, Grant,
Can you join? Vince ---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 06/01/2000 11:04 AM --------------------------- John Arnold 06/01/2000 10:21 AM To: Vince J Kaminski/HOU/ECT@ECT cc: Subject: Re: VaR Let's meet at 4:00. Vince J Kaminski 06/01/2000 09:19 AM To: John Arnold/HOU/ECT@ECT cc: Vince J Kaminski/HOU/ECT@ECT, Tanya Tamarchenko/HOU/ECT@ECT, Jim Schwieger/HOU/ECT@ECT, Jeffrey A Shankman/HOU/ECT@ECT Subject: VaR John, We have been working for the last few days on VaR related issues. The focus is on Jim Schwieger's storage book as of 5/25 and 5/26 where we had some counterintuitive results. This book is a good candidate for a systematic review of the VaR process. It seems that the problem arises from forward - forward vols used by the VaR system. You can see in the attached spreadsheet that the VaR, on a cumulative basis, jumps on Jan 04, when an abnormal FF vol hits a relatively large position. This FF vol is also much different from the previous day number producing a big jump in VaR. This row (Jan 04) is in magenta font in the attached spreadsheet. Please, look at column D. The abnormal FF vol may result from one of the two factors: a. a bug in the code. We are working with the person in IT who wrote the code to review it. b. a poorly conditioned forward vol curve ( a kink or discontinuity in the fwd vol curve will do it). One solution I can propose, is to develop for the traders a fwd-fwd vol generator allowing them to review the fwd vol curve before it is posted. If it produces a weird fwd-fwd vol, it can be smoothed. Can you meet at 4 p.m. to review our findings? Vince
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