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Foreign exchange options traders were snapping up implied volatility on the Swiss franc last week, a move that caused one week implied volatility to rise by 1 vol in three days. Implied vol was trading at 6.2% as DW went to press on Thursday, said traders.

For the investor or hedger accustomed to the risk characteristics of developed markets, emerging markets may appear at times confusing, excessively risky, or may seem to offer easy money. Understanding the risks described by the implied volatility surfaces of emerging market currencies can help one to more realistically quantify the expected mean variance characteristics of these markets. There are two related phenomena that explain most of the generalized shape of emerging market volatility surfaces for free floating currencies: interest rate differentials and skewness.

ABN AMRO has closed its five-member Tokyo equity derivatives desk. The firm has let go Daisuke Kikuchi, head of corporate marketing in Tokyo, who joined last year from Westdeutsche Landesbank to run equity derivative sales in Tokyo (DW, 6/16/02), as part of the move. The decision follows Scott Christensen, head of equity derivatives trading in Japan, relocating to New York last month to assume the role of U.S. head of equity derivatives trading. "We are in the process of relocating our equity derivatives business from Japan to Hong Kong but will continue to provide derivatives products on Japanese equities," said Steven Blaney, spokesman at ABN. He declined to comment on the reason for moving the desk.

ABN AMRO has hired Loren Norton, former credit derivatives trader at Morgan Stanley in New York, for a similar role. Patrick Phalon, spokesman in New York, confirmed the hire, but declined further comment. Arthur Leiz, head of the credit derivatives trading desk and to whom Norton reports, referred calls to John McCarthy, head of credit markets for the Americas, who was on vacation and could not be reached. Norton did not return calls.

Daily activity in the Australian interest rate derivatives market has picked up by over 20% in the last few weeks as hedgers predict the interest rate cycle is bottoming out. "People feel that further downside is limited and are looking to lock-in rates or use options," said Gary Vassallo, head of derivatives at Macquarie Bank in Sydney. This has affected the Australian market more than most because a majority of the debt is floating rate.

A stampede of protection buying on Australian dollar positions saw Aussie/greenback risk reversals switch to favor Aussie puts. Risk reversals on the currency pair stood at 0.4 vol in favor of Aussie puts last Thursday compared with 0.4 vol in favor of calls 10 days ago, said one New York-based trader. A dive in the fortunes of the Aussie dollar from a high of USD0.68 on July 7 to USD0.65 last Thursday, was the main driver of the activity, said traders.

Barclays Capital has hired Gianluca Passaretta, an interest rate derivatives trader at BNP Paribas in New York, for a similar role. Jim Mulvey, director in emerging markets rates, said the hire fills a new position emerging markets team. Passaretta will work with Latin American clients, he said, adding that further hires to the team are possible. Passaretta, who could not be reached, reports to Mulvey.

BNY Capital Markets has hired Carmine Urciuoli, head of investment-grade syndication at Commerzbank Securities in New York, according to a person close to him. Urciuoli's exact duties at BNY could not be learned. Tori Berntsen, president of BNY Capital Markets, and Urciuoli did not return calls.

Citigroup Global Markets has set up an internal reinsurance arm, dubbed Global Reinsurance Capital, that will underwrite catastrophe risks. The firm is expected to structure 'catastrophe derivatives' through the use of swaps and options as part of the operation, according to officials. Danielle Romero, spokeswoman in New York, declined comment.

The European Investment Bank has entered an interest rate swap on an eight-year EUR100 million (USD111 million) Eurobond to make it a floating-rate liability. Jean-Erik de Zagon, senior capital markets officer, said, "We are required to hedge all of our bond issues to minimize risk."

Dresdner Kleinwort Wasserstein is in the midst of putting together a synthetic collateralized debt obligation of asset-backed securities, according to several market participants. The deal is said to be called Alexandra and will have a reference portfolio of around EUR2 billion. Darren Weinstein, a CDO syndication banker at DrKW in London, declined to comment.

Commerzbank has nabbed Steve Lobb, managing director at Scotia Capital in London, as its European head of structured credit. Lobb starts in the coming weeks and will report to Mike Staveley, global head of credit trading, according to Neil Brazil, spokesman at Commerzbank in London.