Amitava and Seksan have identified the source of the discrepancy between the 
option prices calculated by the credit-reserve model and the stand-alone 
spreadsheet model used in deal pricing.  The discrepancy can be traced to 
differences in input variables of the two models and not to any algorithmic 
differences. 

 The options being priced are a strip of options on monthly instruments.  The 
credit reserve simulation program calculates the time to expiration by 
assuming that the option expires on first day of the contract month of the 
underlying contract, which is a very reasonable assumption.  

The stand-alone option pricing spreadsheet allows specification of the option 
expiration date independent of the contract month of the underlying.   In the 
JC Penney transaction, the monthly options were assumed to expire in the 
middle of the contract month, when in reality the underlying monthly 
contracts expire before the start of their respective contract months.   The 
stand-alone spreadsheet model allows such specifications and it is up to the 
user to ascertain that the expiration dates entered are legal.   At present, 
Seksan is ascertaining that the option contracts involved are in deed monthly 
options and not a strip of daily options, in which case we would require 
estimates of intramonth volatilities for both the spreadsheet model and the 
credit reserve model.

Regards,
Rabi De