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From: "Dean Tallam" <dtallam@numerix.com>
To: <vkaminski@aol.com>
Subject: NumeriX Solutions for Enron
Date: Fri, 6 Apr 2001 16:16:40 -0400
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Vincent,
 
It was good speaking with you this afternoon. 
 
NumeriX provides versatile solutions for the pricing and risk management of complex derivative instruments. Of particular interest to Enron may be the use of NumeriX Tools for supporting energy derivatives. 
 
The energy solution provided is a versatile Excel/C/C++ environment for structuring and pricing complex derivatives in the electricity marketplace. The model is based on a microeconomic determination of one or multiple electricity forward curves. Power demands by utility companies are balanced with power generating plants' production to determine the marginal price of electricity for multiple geographic regions. Inter-regional transmission constraints are imposed to calculate monthly forward prices for border stations. 
 
The energy solution is based on Monte Carlo simulation. The regional power demands and fossil fuel prices are modeled as random processes where model parameters are determined from historical data. Marginal prices from different regions are used to determine border prices. This procedure is iterated over many scenarios and subsequent averages are taken to determine the forward COB prices.
 
I. Overview
NumeriX is a leading provider of modular analytical toolkits and off-the-shelf applications that are used for structuring, pricing and quantifying the risk of any type of complex financial instrument or exotic derivative. NumeriX solutions are designed for easy integration with existing in-house or third-party trading or risk management applications. NumeriX solutions include:
NumeriX Tools 
NumeriX FI 
NumeriX FX 
NumeriX EQ

Some of the key benefits of NumeriX solutions include:
Support for all asset classes 
Fixed Income Instruments 
Equity Instruments 
Foreign Exchange Instruments 
Commodity Derivatives 
Credit Derivatives 
Insurance Products
Ability to value any complex financial instrument or exotic derivative 
Increased instrument-valuation precision 
Leading-edge valuation models and calibration routines 
Enhanced risk management solutions 
Stable development platform for building pricing and riskmanagement solutions 

II. NumeriX Analytics
 
NumeriX provides comprehensive solutions that feature advanced tree, simulation (Monte Carlo), stochastic mesh and calibration methods for the following models:
One-factor models: 
Hull-White/Extended Vasicek 
Black-Karasinski 
Black-Derman-Toy 
Black-Scholes
Multi-factor models: 
Multi-factor Hull-White 
Multi-factor Black-Karasinski 
Brace-Gatarek-Musiela/Jamshidian

NumeriX provides a Monte Carlo methodology that employs leading-edge technology with the following features/benefits:
Increased accuracy and faster convergence 
Better sampling of tail events 
Adaptive number generation 
Points do not cluster or leave voids 
Support for correlated sequences 
Generates normal and lognormal sequential processes or concurrent distributions with optional continuous or discrete bounds 
Supports public domain and NumeriX developed sequence generators

III. NumeriX Tools
 
NumeriX Tools is a suite of innovative development tools that provide speed, flexibility and ease of use for all aspects of derivatives pricing and risk management, including building new instruments and new models. A collection of object-oriented modules accessed through a well-designed interface available in C or C++, it includes core mathematical and computational functions required for complex derivatives pricing and risk management.  NumeriX Tools supports all financial asset classes and is designed to maximize flexibility and minimize development and computation time, each component of the NumeriX Tools integrates many cutting-edge algorithms into one intelligent, easy-to-use API. 
 
IV. NumeriX Applications
 
NumeriX FI, designed for traders and risk managers, is a comprehensive and flexible off-the-shelf application for structuring, pricing, and quantifying the risk of any type of complex fixed-income instrument, interest-rate derivative, or exotic structure. NumeriX FI offers flexible and robust instrument-definition and structuring capabilities with advanced tree, simulation (Monte Carlo), stochastic-mesh and calibration methods for both single-factor and multi-factor pricing models.
 
NumeriX FX provides valuation and risk management for a wide collection of plain and exotic foreign exchange options. NumeriX FX includes a variety of Black-Scholes pricing models with a choice of tree- or Monte Carlo-based simulation methodologies.
 
NumeriX EQ provides valuation and risk management for a wide collection of exotic equity derivatives including barriers, basket options, chooser structures and convertible bonds. Please note that NumeriX EQ is in development and scheduled for release in Q3 of 2001.
 
NumeriX CR provides valuation and risk management for a wide collection of exotic credit derivatives including credit swaps, asset swaps, total return swaps, spread options, credit-linked notes and credit basket structures. Please note that NumeriX CR is in development and scheduled for release in the later half of 2001.
 
NumeriX solutions are platform independent (Windows NT or Unix) and provided in the form of C and C++ libraries that are available either as a modular toolkit, designed to minimize the development time for structuring new products or models, or as an application solution. NumeriX application solutions are available as an Excel application or as DLLs designed for quick and easy integration with any third-party trading, risk management or straight-through processing trade support application.
 
Attached you will find some additional materials describing specific NumeriX solutions.
 
I look forward to speaking with you on Monday April 9, 2001 at 1:30 your time (2:30 PM NY time).
   
If you have any questions please feel free to give me a call at (212) 302-6225. 
 
Sincerely,
 
 
Dean Tallam
 
 - NumeriX Tools-Detailed 2001.pdf 
 - NumeriX FI 2001.pdf
vkamins@enron.com