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A $1.3 billion asset sale pushed up levels for JC Penny Funding Corp. to the mid-90s. A $5 million piece of Emmis Communications' bank debt traded at 100 as the company announced a $200 million bond deal. Charter Communications traded at 99.375.

A market for options exists because options have a unique, calculable price. For this price to exist, the market must have a mechanism for ignoring the different risk tolerances of the different players in the market. Risk neutral probabilities is a tool for doing this and hence is fundamental to option pricing. While most option texts describe the calculation of risk neutral probabilities, they tend to gloss over their importance. Failing to incorporate risk neutral probabilities can lead to incorrect conclusions.

Brad Poprik, associate in global credit derivatives trading at Merrill Lynch in New York, has joined Deutsche Bank as v.p., high-yield and investment grade credit derivatives trading. Poprik brings headcount on the high-yield and investment grade credit derivatives trading group to five. Poprik's position is new, as Deutsche Bank is expanding the group in response to increased market demand, said Alex Brockman, managing director, global credit derivatives. "We see all of credit derivatives as a growing area, and we chose to strengthen our coverage of the high yield and investment grade markets," he added.

Salomon Smith Barney is pitching an equity derivatives trade designed to isolate the energy assets from telecom and energy conglomerate Williams and capitalize on their relative cheapness.

Credit default swap spreads on five-year protection narrowed in the telecom sector last week after France Telecom came to market Wednesday with a USD16 billion bond. The five-year spread on France Telecom came in 10 basis points to 170bps and the same contract for British Telecommunications and Deutsche Telekom both moved in 15bps to trade at 155bps on Wednesday.

The Merton Miller Group, (MMG) which is composed of four founding fathers of the derivatives markets, met recently in Reston, Va., to continue their dialogue on the dramatic forces that are changing the futures industry. Senator Richard Lugar (R-Indiana), chairman of the Senate Agriculture Committee, participated in the event, filling a chair left vacant by the late Nobel Laureate Merton Miller, which is now reserved for guest participants in his honor.

Schroder Salomon Smith Barney is recommending clients enter interest-rate swaps in which the customer wins if Polish interest-rates fall and Czech interest rates rise. Poland's central bank is expected to cut interest rates further next month as the threat of inflation has diminished, while the spread between short-dated Czech and euro interest-rate swaps likely will widen as interest rates in euro-land and the Czech Republic diverge.

Several banks in Taiwan are looking to beef up their derivatives teams in interest rate, currency and equity products to meet increasing client demand for hedging these risks.

Ekachart Finance, a Thai finance company with THB24 billion (USD553.4 million) in assets, hopes to become a market maker in the Thai derivatives market once it receives a restricted bank license from the Bank of Thailand. The finance company plans to merge with four other financial institutions, after which it hopes to receive the license and engage in many of the same activities as commercial banks, including derivatives, said Pattana Setthachayanon, v.p., treasurer in Bangkok. The new entity will likely be called National Bank.

Deutsche Bank has reportedly agreed in principle to pay up on a disputed credit default swap in which it provided protection to UBS on a company that designs and manufactures floors and ceilings. An official close to the situation said UBS will dismiss a lawsuit it brought against Deutsche Bank for failure to pay in the swap after what it thought was the reference company filed for Chapter 11 bankruptcy protection last year. Terms of the settlement had not been finalized by press time, the official said, noting that neither party had yet signed on the dotted line. Spokespersons and officials at Deutsche Bank and UBS declined to comment.

Implied one-month U.S. dollar/Canadian dollar vol retraced in the latter half of last week after seesawing in the middle of the week. Implied one-month vol rose as high as 6.6% just prior to the Bank of Canada announcing a 50 basis point interest rate cut on Tuesday. The cut was seen as positive for the Canadian dollar--immediately after the cut, the Canadian dollar rose to about CAD1.5375, said Ashif Jiwani, executive director, head fx options trader at CIBC World Markets in Toronto.