---------------------- Forwarded by John Arnold/HOU/ECT on 06/07/2000 08:43 
AM ---------------------------


Tanya Tamarchenko
06/07/2000 08:33 AM
To: John Arnold/HOU/ECT@ECT
cc: Grant Masson/HOU/ECT@ECT 
Subject: Re: using new FF vols  

Hi, John,
following up the discussion with you on Friday we talked with Risk Control 
people who are not excited to use that FF vol curve
you sent to me. Also in order to use your curves we would have to have them 
for all the locations.
The suggested alternative solution was to calculate the Forward Forward vol 
curves from historical data.
I implemented this solution based on 18 last business days forward price 
curves for NG and 
all basis locations. I used exponential weights with 0.97 decay factor.
I enclose these curves in the spreadsheet below. And here are the VAR numbers 
based on these curves:

     5/30/00  5/31/00
AGG-STORAGE (production) 3,027,000  4,516,000
AGG-STORAGE (test, 0.97)  2,858,543  3,011,761
AGG-GAS        (production) 36,627,200  40,725,685
AGG-GAS       (test, 0.97)  29,439,969  31,207,225

You see that the numbers are stable, lower than the official numbers. 
I suggest that we use 0.94 decay factor as recommended by Risk Metrics which 
would give more weight to recent data.
We need to test this approach for a period of time and also to collect 
backtesting data for an educated choice of decay factor.

Tanya.




John Arnold
06/07/2000 07:40 AM
To: Tanya Tamarchenko/HOU/ECT@ECT
cc:  
Subject: 

Tanya:
On Friday I emailed a new vol curve to use for VAR testing.  I was under the 
impression that you could apply this vol curve to the price book and storage 
book and have a new experimental VAR number by Monday. I have not received 
any response.  Please reply with status of this project.
John