RE: High 2nd order for deal 638008

This is not just a July 6 issue. Before June 29, my 2nd order effects have been less thatn 15000 CDN$.

For the following days, my 2nd order effects have been:

June 29 C$ (216,729)
July 2 C$ (140,533)
July 3 C$ (212,285)
July 5 C$ (117,156)
July 6 C$ (385,535)
July 9 C$ (264,504)

What is going on? Can you explain ?

-----Original Message-----
From: Meira, Marcelo
Sent: Tuesday, July 10, 2001 3:09 PM
To: Zufferli, John
Cc: Postlethwaite, John; Reeves, Kathy; Gupta, Sanjay; Lee, Norman;
Yang, Zhiyun; Chen, Hai
Subject: High 2nd order for deal 638008 - July 6 X July 5

The following is a summary of our findings regarding the high 2nd order for option deal 638008 , effective date July 6, previous date July 5:

The total deal daily change: -172899 is correct.
The historical greeks and curve shift are correct. They add up to -62084
The daily liquidation value [196872] is not correct, and is pushing the 2nd order to a very high (highly negative) amount. Upon examining the option liquidation report, we find that there is $43680 in liquidation and $153192 in expiring options.
This totals to $196872. The issue is, the expiring options are no longer part of the option's effective date value, and they were part of the previous date's value (since they hadn't expired yet). Therefore, the liquidation values should be:
Liq: $43680
Expired: -$153198

which totals to a negative value of -109512. If we use this value (-109512) in the daily liquidation column (which arguably could be split between liquidation and expiry) instead of the current value (196872), which results in a second order value of -1297.

We are still discussing the causes and implications of this issue. Please let us know if you have any further questions or if you have any issues with this explanation.

Regards,

Marcelo L. Meira
Sr IT Developer
Enron Networks - Houston, TX
(713) 345-3436