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The French treasury will likely execute a further EUR200 billion (USD178.3 billion notional) in interest-rate swaps over the next three to four years in order to reduce the average duration of its debt to four years.

Asia Financial Holdings, a Hong Kong-based financial company whose subsidiaries include Asia Commercial Bank and Asia Insurance, with over HKD20 billion (USD2.5 billion) in assets, is planning to use over-the-counter foreign exchange options for the first time. The firm will primarily trade options for speculative positions as a way of increasing its revenue streams, but it will also use them as a hedging tool on its USD400 million global bond portfolio. "This will be for hedging exposure as well as for speculation," said Vinson Lei, treasury manager.

Andrew Barnard, head of U.S. convertible arbitrage trading at Goldman Sachs in New York, has left his position to join hedge fund JD Capital Management, in Greenwich, Conn., according to the fund's founder David Rogers. Barnard, who worked under Rogers during part of his nine-year stint at Goldman, started at the hedge fund two weeks ago and will be working to develop its convertible arbitrage group. Barnard will have direct oversight of the group. Rogers, a former Goldman Sachs equity derivatives head, started putting together the hedge fund in June and has scheduled for a February launch. He is hoping to raise USD350-400 million for the multi-strategy fund, which will incorporate relative value and arbitrage strategies (DW, 11/19).

ICAP has hired James Emanuel, weather derivatives broker at GFI in London, in a similar position. He will work with Katleen De Cock, weather derivatives broker in London, and report to Paul Newman, managing director of commodities in London. De Cock said they will work as "partners in crime."

ING Barings plans to structure in the next six months what several rivals are calling the first synthetic collateralized debt obligation in Asia referenced to a portfolio of synthetic CDOs. "This sounds innovative," said a credit structurer at a rival firm in Singapore, adding that he had not seen this type of deal before. However, the structurer noted, "it might be difficult to sell this in Asia. There will be a lot of education involved." But a credit structurer at ING said there is now sufficient appetite for the product, because of falling yields in traditional fixed-income products and growing sophistication about CDOs among end-users.

J.P. Morgan has suspended its European credit-default swap index and is in the process of retooling it to better represent the most-liquid names in the European market. "It's on pause for now and our goal is to come up with a means of identifying a liquid credit-default market using a rules-based approach," said Lee McGinty, index strategist in London. He explained the index was launched about two years ago to include the largest 100 European companies, investment-grade and below, based on their outstanding equity. But McGinty said that became problematic as companies, such as Anglo American, increased their equity issuance, in Anglo's case via a London listing, but avoided the debt markets. This affected their position in the index but not in default-swap liquidity. "The rules we had led to completely illiquid names that in some cases were not possible to price," he said.

Lehman Brothers bought more than USD3 billion (notional) of one-month yen puts/U.S. dollar calls struck at JPY133 between Jan. 4-8, according to fx options traders on the other side of the positions. One-month volatility surged more than 1.5% during the three-day span. Traders at Lehman declined to comment.

Merrill Lynch is looking to increase its global fx staff by 50% this year--amounting to some 40 hires globally--in an effort to bolster a division that has traditionally lagged the firm's stellar performance in debt and M&A league tables. Cinta DelMonaco-Kemp, managing director and head of cash and derivatives fx trading in New York, said most of the hires will be in fx options sales and trading. It expects to start hiring after bonus season. "Clearly people on the Street need to get paid and then the process will begin," she explained.

The Netherlands could double its use of interest-rate swaps this year as part of its efforts to trim the average duration of its debt. The country may enter up to EUR6 billion (USD5.38 billion) in swaps in which it receives fixed in the long end. On the swaps it will receive 10-year fixed-rate and pay a six-month Euribor-based rate, according to Erik Wilders, head of the dealing room at the Dutch State Treasury Agency in Amsterdam. He said the sovereign executed EUR3 billion in similar positions last year and plans to increase its usage this year to lower the average duration of the country's outstanding debt to 3.9 years from four years. Last year was the first in which the Netherlands used swaps to manage its debt profile. The country has EUR176 billion in outstanding debt.

Demand and supply fix the prices of traded assets in every market. The prices are taken as given and plain-vanilla derivatives traders view them through the Black-Scholes model to derive implied volatilities. The role of the quants is to create models that are consistent with market data. These models are based on parameters that are local and the task is to make sure the implied parameters by the model match the implied parameters from the market. This is a guarantee of a low model error. The Dupire model as it is explained in [1] is an illustration of a model that uses local volatility to price consistently with European prices or implied volatilities.

Ivy Asset Management, a hedge fund in Garden City, N.Y. with USD5 billion in assets, is interviewing for an equity derivatives strategist as part of a plan to increase the firm's use of over-the-counter equity derivatives products, according to a company official. The firm began looking to hire at the start of the New Year and is hoping to fill the spot within the next several weeks, the official said.

Credit-default swap spreads on Spanish oil and gas major Repsol YPF went on a roller coaster ride last week, widening about 50 basis points early in the week before coming back about halfway later in the week as Argentina finally devalued the peso and the country's crisis intensified. Five-year protection on Repsol, which bought Argentina's YPF in 1999, was quoted at 225-235bps Thursday, down from 250-260bps earlier in the week. It had been as tight as 200bps the previous week. Volume in Repsol has increased fivefold so far this year.