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Washington Group's once-plummeting levels have turned around. Dealers reported a series of small trades this week in the 82-83 range, which is up from the mid-60s in late June. Meanwhile, dealers note increasing comfort surrounding the company's financial issues and confidence that its core business - construction - is in demand and profitable. The company is also expected to pull out of Chapter 11 bankruptcy protection by fall. Arch Wireless' debt is trading at 25, while Owens Illinois is trading at 90.

First Union is set to launch this Friday syndication of a $240 million credit for DRS Technologies, backing the company's acquisition of the Sensors and Electronic Systems business of The Boeing Company. Parsippany N.J.-based DRS, a defense electronics company, is buying SES for $84 million and is wiping out an existing $160 million loan with Mellon Bank arranged in 1998, noted Richard Schneider executive v.p., treasurer and cfo of DRS. Mellon will be on the new credit, Schneider noted, but he declined to say which other banks will be involved or why First Union was chosen to lead.

This week's Learning Curve covers pricing model application, namely calibration of market models to caps and swaptions, closed form solutions useful for calibration and pricing of Bermudan options with Monte Carlo in the context of the market models. Calibration To Caps & Swaptions

CDC Ixis Capital Markets, a subsidiary of CDC Ixis, plans to start offering foreign exchange derivatives for the first time within a year. The bank currently offers interest-rate and foreign exchange hybrid derivatives, but has not offered pure foreign exchange derivatives on a permanent basis before, according to Stéphane Kourganoff, global head of fixed income derivatives in Paris. He added the bank will only offer exotic derivatives because it has a specialty in structured products and does not have the global presence to hedge high-gamma options. Firms need a global presence to hedge this type of options because they require constant trading of the underlying risk.

Several of Dresdner Kleinwort Wasserstein's 20-strong Tokyo equity derivatives team are reportedly considering abandoning the firm after DrKW recently announced it will close its cash equity business in Japan and cut 1,500 jobs, mostly in Asia. "There's no good news built into this at all," said a market official in Hong Kong. However, rival banks are unlikely to be falling over themselves to cherry pick DrKW's Asian equity derivatives team because of tough market conditions and hiring freezes. A spokesman at DrKW said the bank remains committed to equity derivatives. He declined further comment

Foreign banks in Thailand, including Citibank and HSBC, have started receiving requests for interest-rate options from corporates looking for more sophisticated hedging products. HSBC expects to pull the trigger on its first baht option in the coming months and has already priced several deals for its clients, said an official close to the firm. Much of the demand comes from manufacturers looking to manage loan liabilities. Clients are starting to look at sophisticated derivatives products now because foreign banks have only recently--in the last two or three years--started to move onshore, said a banker in Bangkok.

Fortis Bank is marketing a five-year guaranteed note on the Dow Jones EURO STOXX 50 index that is structured using over-the-counter call options. Koen Zoutenbier, senior account manager on the derivatives and structured products desk in Amsterdam, said the products give high-net-worth investors a 100% capital guarantee plus 150% participation in the first 25% growth in the index, 70% participation in the next 25% growth and then 50% participation for anything over that.

Europe Neutral, a market neutral hedge fund with EUR45 million under management run by ABN AMRO Asset Management, is considering using total-return swaps and contracts for differences on equities. Dan Jelicic, senior portfolio manager in London, said the number of trades the fund executes has increased because of higher volatility. If trading volumes increase further from current levels it will take the plunge, he explained. However, if trading volumes are less than twice the value of the fund it is not economical to use these instruments because the fund has to pay a financing charge to the arranger. Total-return swaps and CFDs allow the fund to avoid U.K. stamp duty. Jelicic added it would be free to use any derivatives house.

Pioneer Alternative Investment Management plans to launch a convertible arbitrage fund that will use over-the-counter derivatives. Peter Cripwell, cio in Dublin, said the fund will use credit swaps, interest-rate and equity derivatives to isolate the embedded options in convertible bonds. Cripwell declined to give an example of a typical strategy but added, "I have no problem with the manager taking significant positions using derivatives." The fund will execute its derivatives transactions with Deutsche Bank, its prime broker.