fyi uk var issues vince uk var breached limit last week uk traders asked us review correlations across uk gas power well correlations across efa slots part work last week update correlations based historical prices tanya richard lewis 10 08 2000 07 31 tanya tamarchenko hou ect ect cc oliver gaylard lon ect ect james new lon ect ect steven leppard lon ect ect rudy dautel hou ect ect kirstee hewitt lon ect ect naveen andrews corp enron enron david port market risk corp enron enron ted murphy hou ect ect simon hastings lon ect ect paul arcy lon ect ect amir ghodsian lon ect ect subject var correlation scenarios thanks tanya interesting results vacation next week current thoughts contactable mobile necessary gas power correlations see point gas power correlation affecting var combined gas power portfolio raises interesting point conservative 30 long term correlation combined var olmm less previously expected affect limit breach strictly speaking still uk power limit limit set assuming gas power correlation therefore higher portfolio var suggested way forward given importance spread options uk gas power books allocate gas power books share reduction portfolio var ie reduction portfolio var sum power var gas var also understand mail correctly matrix 1 implies 55 gas power correlation consistent correlation curves reduces total var ol 8 mm efa slot correlations issue whether existing efa efa correlation matrix correct separate issue understand matrix 2 efa efa correlations come happy run historical correlations forward curves use first 2 years would suggest original matrix based historicals analysis worth matrix 2 results certainly indicate important correlations closing thoughts friday trading left us longer would expect limit breach monday still reviewing shape long term curve like wait simon hastings back office monday week finalising regards richard tanya tamarchenko 06 10 2000 22 59 oliver gaylard lon ect ect richard lewis lon ect ect james new lon ect ect steven leppard lon ect ect rudy dautel hou ect ect kirstee hewitt lon ect ect naveen andrews corp enron enron david port market risk corp enron enron ted murphy hou ect ect cc subject var correlation scenarios everybody oliver sent us var number different correlations uk power portfolio separately uk gas portfolio first var calculated accurately correlation power gas curves affect var number power var number gas aggregate number affected changes see due fact use monte carlo simulation method accuracy depends number simulations even change correlations use different realizations random numbers get slightly different result model see effect using different correlations gas power look aggregate number calculated weighted correlations based 2 curves got paul weights along term structure used product price position volatility time bucket gas efa slots results shown inserting numbers original correlation matrix produced negatively definite correlation matrix brakes var engine correlation matrix set random variables non negative definition remains non negatively definite calculated properly based historical data according phone discussion started experimenting correlations assuming correlation efa slot et elec versus gas sending spreadsheet summaries results addition aggregate var numbers runs oliver see var numbers based correlation matrix 1 matrix 2 matrix 1 correlations across efa slots identical original matrix obtained matrix trial error matrix 2 produces naveen using finger algorithm differs original matrix across efa slots well power versus gas correlations gives higher var matrix 1 concluding look historical forward prices try calculate historical correlations tanya oliver gaylard 10 06 2000 01 50 pm richard lewis lon ect ect james new lon ect ect steven leppard lon ect ect rudy dautel hou ect ect kirstee hewitt lon ect ect naveen andrews corp enron enron tanya tamarchenko hou ect ect david port market risk corp enron enron cc subject var correlation scenarios results follows changing gas power correlations correlation var uk power book var uk gas book 0 0 ol 0 405 mm 3 180 mm 0 1 ol 0 134 mm 3 197 mm 0 2 ol 0 270 mm 3 185 mm 0 3 ol 0 030 mm 3 245 mm 0 4 cholesky decomposition failed positive definite 0 5 cholesky decomposition failed positive definite 0 6 cholesky decomposition failed positive definite 0 7 cholesky decomposition failed positive definite 0 8 cholesky decomposition failed positive definite 0 9 cholesky decomposition failed positive definite 1 0 cholesky decomposition failed positive definite peaks peaks treated avoid violating matrix integrity interesting note higher correlation 0 2 power var increases counter intuition implies need look correlations applied within model derive single correlations term structure next action understand applied whether model captures p l volatility spread option deals 0 4 onwards var calculation failed oliver