1. (a) A barbell is a approach of maintaining a portfolio of securities concentrated at two extremes in terms of maturity date very short term and very long term.

A positive roll down is a positive return as of a security trading at a discount which reaches its par value near the maturity date. Time decay is the ratio of the price with admiration to a decrease in time to expiration of any asset whose value decreases over time.

(b) A jump to default takes place when an investment grade entity with high rating which has been continuing in subsequent rolls of a credit index without degradation (in credit rating) suddenly defaults.

(c) SG's strategy: Ever since the 7-year equity correlation has tightened the spread has increased against the 5-year and 10-year spreads.

Therefore it is profitable to sell the 7-year equity tranche protection and buy the 5-year and 10-year equity tranche protection barbell. Obviously there is a steepening of the 7-year spread. A jump to default is healthy protected by the 10-year protection.

SG thinks so as to Alstom's 3-5 year curve is steep. This signifies Alstom March 2010 bonds at 6.25% would lead to mark-to-market gains. The 3-year CDS offers the protection against default.