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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.

Ferro Corp., a Cleveland-based conglomerate that produces plastics, chemicals, electronics and ceramics, is looking to make its first use of over-the-counter derivatives as part of an effort to lower its overall debt-to-capitalization ratio. Ferro, which averages some USD1.46 billion in annual revenue, is in discussions with investment banks about entering a fixed-to-floating interest-rate swap to convert the 9 1/2% fixed coupon on a recent USD200 million bond issue to a floating rate, according to a company official. The company is considering pulling the trigger on a swap within the next six months, he added.

Council of Europe Development Bank has entered a cross-currency interest-rate swap with Royal Bank of Canada as part of a recent USD500 million bond offering. The swap converts the proceeds from the fixed-rate dollar-denominated deal into floating-rate euro-denominated liabilities. "That is our policy for risk management, we normally swap them into euros and into floating," said Arturo Seco, treasury manager in Paris.

Tokyo-Mitsubishi International plans to hire two credit derivatives quantitative analysts in London to add to its fledgling European credit derivatives business. Peter O'Neill, head of credit trading in London, said the team, which comprises two traders, started dabbling in the market late last year and needs research support.

One-month yen/U.S. dollar implied volatility fell to 10.6% last Wednesday from 11% a week earlier as demand for yen puts/dollar calls declined in line with a growing uncertainty over Japan's finance ministry's strategy on the strength of the yen. The week began with traders believing that the yen would continue its downward course until the middle of the day Wednesday, when Yasuo Fukuda, Japan's chief cabinet secretary's comments reversed the market. Fukuda said that although the current exchange rate is acceptable, its continued fall over the last three months has happened too rapidly. Traders in New York interpreted the comment to mean that Japan may not want the yen to decline much further without a respite.

UBS Warburg wants to hire two structurers for its growing collateralized debt obligation and wholesale repackaging team in London. The firm was interviewing candidates last week, said Hugh Evans, managing director and co-head of global credit derivatives trading in London and to whom they would report. The hires would double the firm's structuring effort in London to four professionals.