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Bear Stearns International has hired a pair of derivatives marketers in London to strengthen its coverage of the French market, according to Jerome Camblain, senior managing director-head of sales fixed income and derivatives Europe. Sophie Billiard has joined from Morgan Stanley as an equity derivatives marketer and Mathias Echene, v.p.-structured products marketing at Schroder Salomon Smith Barney, will join Bear Stearns at the end of August to market fixed income and credit derivatives.

Dealers who haven't already sped off to $1,000 chop house dinners in the Hamptons this week commented on the "dead market." Still, about $30 million of Pacific Gas & Electric's bank debt traded at 69-70, which is about level to previous trades. Bridge Information Systems' debt inched up to 41 from 38 last week. About $10 million of Owens Corning's debt traded level at 62 1/2 in a rumored auction.

Taiwan corporates and investors spooked by the downturn in the country's technology-driven economy last week were scooping up long-dated U.S. dollar calls/Taiwan dollar puts in the offshore market. Demand was across the curve, with interest in the back end for six and nine-month options with typical strikes at TWD35-35.50, according to a trader in Singapore. "They don't want to be caught with Taiwan dollars depreciating further," he noted.

The aim of this article is to build an easy model that explains the implied volatility structure observed in the market. In the equity market we have a very pronounced skew whereas in the foreign exchange market the smile is U-shaped. This paper presents a simple model that is easy to use for Simulations (Monte Carlo) as well as for lattices (Partial Differential Equations or Trees) and we derive closed form approximations for the implied volatilities that are very accurate. This allows a better calibration to the market data. This model is then applied to an up-and-in American-style digital option, which is very sensitive to the smile. This option becomes expensive because of the accumulation of two factors: the distributions of the stock at different maturities and the correlation between these maturities.

Gulf International Bank is planning to launch a U.S. long/short equity hedge funds that will use over-the-counter derivatives. Mohab Mufti, head of financial markets in London, said it expects to launch the fund in September. David Bailey, funds product manager in London, added that the fund will be permitted to write covered calls and puts and sell options to capture premium after periods of excessive volatility. Bailey expects the fund to manage USD20 million.

The Australian credit derivatives market is starting to adopt the International Swaps and Derivatives Association's modified-restructuring documentation and traders in Sydney expect a concomitant pickup in liquidity. As the Australian market moves in line with global market conventions, there will be more players and more price movement, bolstering liquidity, said Pierre Katerdjian, global credit swap trader at Deutsche Bank in Sydney.

Foreign exchange and interest-rate derivatives strategists are throwing together plays on euro/sterling after Britain's largely pro-European Labour Party won a second five-year term in last month's general election.

Investment banks and German mortgage banks piled into the euro interest-rate receiver swaps market last week on expectations the European Central Bank would follow the Federal Reserve in cutting interest-rates and in anticipation of a EUR5 billion (USD 4.3 billion) five-year bond KfW will issue this month. The typical notional size of the trades was EUR50-100 million with a total of approximately EUR3 billion going through the brokered market on Thursday, twice the normal volumes.

Imperial Tobacco, with revenue of some GBP5.4 billion (USD7.65billion), plans to hire a derivatives conversant assistant treasurer. John Jones, group treasurer in Bristol, U.K., said the recruit would need to have experience using interest-rate and foreign exchange derivatives for hedging risks originating from funding and overseas revenues. Candidates are most likely to come from another international corporate treasury, according to Jones.

Five-year protection on Marconi jumped 12 basis points last week to 192.5bps, as traders feared it would follow Nortel Networks and right off assets. But Leandro De Torres Zabala, analyst at Standard & Poor's, said it was assured by Marconi last week that its inventories are healthy and there will not be a right off or a profits warning. Nortel announced a right off of approximately USD12.3 billion in intangible assets in its second quarter performance outlook two weeks ago.

AXA Investment Managers plans to launch its first capital guaranteed fund of funds product in the fall. The investment manager will sell capital guaranteed participation in a fund of funds to French retail investors and use the proceeds to purchase a basket of government and financial institution bonds, explained Daniel Léon, head of structured derivatives in Paris. It will then enter an asset swap in which it pays the counterparty the coupon on the bond portfolio and receives the performance of a fund of funds. The swap counterparty gains exposure to the fund of funds either through direct investments or by buying futures on a benchmark index and swallowing the tracking error.

AIG Financial Products has hired Jeffrey Robbins, ceo of derivatives boutique First Chicago Tokio Marine Financial Products in Tokyo, and a 15-year veteran of First Chicago/Bank One, as managing director, marketing in Tokyo. In this new position Robbins is responsible for marketing the firm's structured financial products. AIG FP likely will expand the operation with additional hires, Robbins noted, declining to elaborate.