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Lehman Brothers is pitching to customers a strategy designed to profit from low near-term equity volatility and an expected longer-term upswing on the Nasdaq 100 index. Paul Lieberman, v.p., equity derivatives and quantitative research at Lehman in New York, said the firm recommends selling short-term at-the-money, or nearly at-the-money, straddles, to finance the purchase of longer-dated at-the-money, or nearly at-the-money, calls. The investor wins if the index stays range bound in the near term, and then rises. The straddles and calls can be purchased and sold via the over-the-counter or the listed market.

J.P. Morgan Chase is looking to expand into credit derivatives in the Korean market to meet demand from corporates and local banks looking to cover problematic loans. The bank is in the initial planning stage and probably will roll out products by year-end, according to a trader in Seoul. Officials at the bank could not be reached for comment.

Regions Financial Corp., a regional bank based in Birmingham, Ala., has launched a derivatives group that will focus on over-the-counter fixed-income derivative products such as swaps, caps, floors and collars. The group will be based in Atlanta. As the initial step in this process, Regions has hired a derivatives marketer and a derivatives trader.Chris Grubbs, senior v.p., director of capital markets, said that an increase in demand for derivative products by mid-market corporate clients prompted Regions to set up its group.

Aberdeen Asset Management, a global asset management company with USD45 billion in assets, is looking to expand its derivatives use in Singapore in the upcoming months. The firm is currently building a fixed income team and as a result, will look into using a wider variety of derivative products, such as interest-rate and currency derivatives. James Blair, head of the new fixed income department, said the firm is open to interesting ideas for using derivatives. Blair recently transferred from the firm's Sydney office.

Schroder Salomon Smith Barney is pitching a cap and floor option on the Dow Jones Global Titans Index to investors nervous about the future direction of the equity markets. Daniel McNeill, equity derivatives structurer in London, said in the trade investors buy a three-year exotic option on the performance of an equity index. The option gives investors participation in the first 10% of positive or negative performance for each six-month period of the instrument's life.

Currency options traders last week were snapping up euro calls/yen puts and U.S. dollar calls/yen puts as they expected the Japanese currency to continue to decline. Euro calls/yen puts were trading with typical strikes of JPY114-115 and maturities of one-two months while dollar calls/yen puts had various strikes to reflect greenback upside. The dollar calls/yen puts were also for maturities of less than two-months. Traders said demand for the options came from bank's proprietary desks and corporates hedging exposures. Euro/yen spot was trading at JPY111.15 and dollar/yen spot was JPY121 on Wednesday.

UBS Warburg today plans to go live with a web site that will give clients indicative prices for LIBOR-based fixed income derivatives products. Derek Yates, director-fixed income derivatives in London, said the site will cover 90%--in terms of volume--of products the department offers, including swaps, swaptions, caps and floors denominated in seven currencies. These are Australian, Canadian, Hong Kong, Singapore and U.S. dollars, euro and sterling. Execution will still be handled via a telephone call, as Yates believes there are still speed and reliability problems with pure Internet execution.

U.S. corporates are turning once again to writing puts on their own stock in response to sagging share valuations, stratospheric implied volatility and falling interest rates. In particular blue-chip technology companies are re-entering the market as part of their share buyback programs, as their share prices have been dragged down by negative sentiment, say corporate equity derivatives marketers in New York.

Evaluating weather derivatives requires a different approach from that used for evaluating common financial products. One reason is the difficulty of replication, as temperature, rainfall or wind is not a traded asset. Consequently delta neutral techniques cannot be used and, in addition, there is a lack of liquidity in some temperature contracts. Therefore a number of market participants have started to use an actuarial approach when dealing with weather derivatives. Extracting and de trending heating degree days or cooling degree days from data, and then fitting a distribution to the events, makes valuation possible based on the expectation of the loss plus a given risk premium that reflects the sensitivity to risk. However, in doing so, a number of problems arise. These stem from the fact from that, in most cases, a maximum of 40 years of data is available. Some of these issues include:

American Express Financial Advisors has been rotating out of a shorter-maturity Treasury position and into an aggressive overweight in spread product, on the view that Federal Reserve easing will proportionately benefit longer-duration MBS and corporates, according to portfolio manager Colin Lundgren. Lundgren and his team have sold some $840 million in Treasuries over the past seven weeks from their $7 billion portfolio, concentrated entirely within the two- and three-year sectors, and will purchase up to an additional $300 million in MBS and corporate bonds as the year develops. Central to this trade is Lundgren's belief that the bond-market has priced in "a lot of bad equity news," and that short of a major recession, he anticipates yields rising, especially within the short end of the curve, as the Fed eases an additional 100 basis points.

Brandywine Asset Management has recently sold 4% of its portfolios' Canadian bonds and has been buying Australian agency bonds, on the view that the U.S. dollar will suffer a 20% decrease against the Australian currency. Stephen Smith, a portfolio manager of a $1.2 billion global bond fund, says the firm's entire agency allocation, $170 million, is now in Australian agency bonds.

The Lutheran Brotherhood will be seeking to put new cash and proceeds from interest and maturities to work in real estate ABS throughout this year, because the firm is currently underweight the sector relative to ABS indices, according to portfolio manager Steve Lee. Lee, who manages a dedicated ABS portfolio of $300 million, also reasons that the well-documented trouble of several large ABS issuers within the manufactured housing segment, especially firms like Conseco, Oakwood and Vanderbilt, over the last several years has caused some hesitation among buyers. Particularly interesting to him are the home equity loan and manufactured-housing segments, where he notes that industry fundamentals seem to be improving. Also attractive to him about the sector is the fact that many of these issues trade 10-20 basis points wider than credit-card or auto-loan backed deals, at about 30 basis points off of swaps, but have AAA ratings and broad institutional sponsorship.