Hi there Dutch!

How are you? Hope you're doing well.

We having been working on a storage problem that Philip as given us the
framework for.  In working out the details, we've come across a few
questions that we know you can help us answer. I've included Philip's
description of this problem in the word doc below, just for reference.

1) In Philip's document, he lists discount factors over the months.  We
understand that since the users are making storage decisions and hedging
future months, they need to take time value of money into account.  What is
actually being discounted? Is it NYMEX? Is it prices of the instruments?
How does that factor into user's storage decisions?

2) In our problem, we ask the user to fill out a storage schedule and then
select instruments to hedge positions created by the storage.  In our other
scenarios we have initial and natural position split out into the Enron
risk buckets (Price, Index, Basis, GD) and have users choose the
appropriate hedging instruments based on the risk areas the instruments
cover.  In this storage scenario, the only positions created are by storage
decisions.  What risk bucket would storage create a position in? My
thoughts are that if the only positions created are by storage, then would
the user really need only 1 type of instrument to hedge their risks?

Thanks in advance for your help, Dutch!

Ann

(See attached file: Storage Problem.doc)


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 - Storage Problem.doc