David, During today's VaR coordination meeting we had a discussion of issues related to mapping of the forward price curves into core locations. Mapping is a necessity dictated by the limitations of the computer system: we have to reduce the dimensionality of the problem to stay within the bounds of available CPU memory. Also, in some cases the quality of price discovery is poor and it's difficult to model the price curves independently: we solve the problem by mapping them into more liquid and better behaved core locations curves. We have agreed on the following: 1. Winston will investigate the IT side and determine to what extent we can increase the number of forward price curves that are simulated as basic (core) curves. He will investigate the impact of a larger number of the core curves on the time required to complete the VaR run. 2. The curves associated with the biggest 10-20 positions in each commodity should be modeled as core curves (i.e. no mapping into other locations). It makes sense to monitor the biggest risks separately and avoid aggregating them into less transparent aggregates. 3. The results of an automated clustering (mapping) procedures should be systematically monitored by a human and corrected if they misrepresent the risks of the trading positions. This responsibility should be vested with one person (right now the responsibility is dispersed through the organization and this means in practice that nobody is responsible). Research can allocate one person to this task; cooperation of trading and RAC will be critical. Vince

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