|
|
Enron Mail |
Stinson,
Please, take a look at it. Vince ---------------------- Forwarded by Vince J Kaminski/HOU/ECT on 11/06/2000 11:12 AM --------------------------- Gillian Lockwood 11/03/2000 07:42 AM To: Pavel Zadorozhny/HOU/ECT@ECT, Vince J Kaminski/HOU/ECT@ECT cc: Jarek Astramowicz/WAR/ECT@ECT Subject: Re: digitals Pavel, Many thanks for your note. I understand that Digitals are not core Enron business but as you know, I'm trying to explore Digitals to give, for example, a company a guaranteed income in year one (to mop up expiring tax losses). This is offset by a guaranteed expense in year two. See attached hypothetical example. The digital will reflect an underlying commodity to which a company is exposed to and would be part of a price risk management strategy, thereby giving it 'commercial purpose'. I would be interested in hearing from you generally on the subject -- the rational for using Digitals and your knowledge of its use in other markets (electricity or other commoodity or in the banking sector). It seems to me that setting the srike is key and a 'value judgement' or am I wrong, and are there curves and models which could help you substantiate this? In any event, do you have a feel for what an acceptable % of chance or likelihood that a commodity price hits the strike on a digital before it becomes non arm's length and does not pass the smell test? Vince, Jarek suggested that you may be able to assist. Your views would also be appreciated. Gillian. From: Pavel Zadorozhny on 02/11/2000 15:15 CST To: Gillian Lockwood/LON/ECT@ECT cc: Subject: digitals Digital options are extremely uncommon in the crude oil market. Nobody ever asked me to show quotes in the OTC market. The only time we encountered them was when producers, brought by our marketing team, wanted to sell a knock-outable swap, whereby they would get a higher swap price in exchange for cancelling the swap if the price settled below a certain level. This structure had a digital put embedded in it, although the customers didn't necessarilly know that. The companies were US oil and gas producers: Venoco, Titan, Magnum Hunter, Patiena Oil & Gas, Belco, Central Resources. It was about 1 year ago. In the OTC market, at about the same time, I asked for quotes to hedge these transactions and sold a digital Cal 00 $16 swaption to Elf and strips of digital puts to somebody else that I cannot recall. I hope this helps. Pavel
|