ham/0054.1999-12-22.kaminski.ham.txt

Subject: new volatility curve generator for uk power
we have established a set of power volatility curves down to the efa / monthly
level of detail that can be marked to market up to 6 years out . beyond this ,
the volatility decays to what we understand to be the long - term level for
power volatility , given our understanding of the behaviour of forward prices
over large time - scales .
the swaption traders can now fit the first 5 - 6 years of the volatility curve
to the market - observed baseload swaption implied volatilities ( typically 3 to
12 months duration for the underlying swap ) and then be in a good position to
price other swaptions ( including swaptions on individual efa slots )
consistent with the curve . there may also be an impact on the daily var
calculation .
an illustration of the current volatility curves is pasted below : -
these curves will be reset as the market moves , and allow a mark - to - market
approach to be followed for our volatility book . the spreadsheet model is
saved in t : \ readwrte \ elec _ uk \ models \ . xls and also
attached below for houston staff to review .
[ stinson - i ' d be grateful if you could offer an opinion / audit to ensure that
i haven ' t missed anything , thanks . ]
regards ,
anjam
x 35383