Regional Price Convergence in Australia and New Zealand, 1984-1996

This paper uses disaggregated price data to analyse the extent and the speed of retail price convergence between New Zealand and Australia since 1984. The paper addresses several issues concerning the integration of markets in the two countries. It compares the behaviour of the prices of a set of goods in different cities in Australia with the behaviour of the prices of the same goods in New Zealand. The data is used to answer two sets of questions: first, whether there are systematic differences in the extent to which the retail goods markets between New Zealand and Australia are integrated when compared to the integration of markets between different cities within Australia; and second, whether the theory of purchasing power parity can usefully describe the effect of changes in the bilateral exchange rate on New Zealand prices.

Attributions, distress and behavioural responses in the significant others of people with Chronic Fatigue Syndrome

To test an attribution-emotion model of reactions to chronic fatigue syndrome (CFS/ME), 30 significant others of 30 adult patients with CFS/ME were administered a semi-structured interview about their beliefs regarding the patient’s illness, and completed questionnaire measures of distress and behavioural responses to the patient. Spontaneous causal explanations (attributions) for illness events, symptom exacerbation and negative patient mood were extracted and coded. Significant other distress and negative behavioural responses towards the CFS/ME patient were associated with attributing illness events to causes personal and internal to the patient. Our findings may inform future family–based interventions for CFS/ME

The Effect of Asset Price Jumps on Consumption and Investment Decisions

This paper examines the importance of jumps in asset prices for investment problems potentially incorporating consumption decisions. We present a technique for solving investment-consumption problems when asset prices jump. We also demonstrate how to quantify utility losses using an "optimal fee" approach - measuring how much a portfolio advisor could charge an investor to provide them with the new investment technology. As an application we consider empirically plausible models for the S&P 500 index. We conclude that while there are some moderate differences in optimal investment behaviour once jumps are accounted for the actual utility loss in economic terms is very low

Sampling Options for Farmers to Detect Insects in Stored Grain

Increasingly, Queensland farmers are choosing to store grain longer on farm, and many farmers are investing in new silos to increase storage capacity. This trend is driven mainly by the desire of farmers to manage their harvest logistics rather than seeking to maximise profit. The problem is that increasing on-farm storage comes with an increasing risk of insect infestation. There is an urgent need, therefore, for appropriate sampling methods to help farmers manage this risk and minimize marketing delays. Ideally, they should be simple, safe, cost effective and easy to interpret. The project aim was to investigate such options and it had three deliverables: a review of the relevant peer reviewed literature, preliminary sampling data from farm trials in Queensland, and feedback from farmers and stakeholders on sampling needs and preferences of farmers. The literature review highlighted the value in direct sampling of grain for insects and the use of probe traps in the grain bulk. It also highlighted the need for locally generated trial data, because of the need for data that are relevant to local storage conditions. A successful pilot study was completed on two farms in southern Queensland. A series of recommendations was developed and knowledge gaps requiring further research were identified. Three industry meetings provided opportunities to highlight the urgent need for sampling methods for farmers, to present results of the field study and to receive industry feedback. The project represents a first step towards providing farmers with the ability to monitor for grain insects, but more research is needed to before this goal can be achieved

Lattice methods for no-arbitrage pricing of interest rate securities

We explore calibration of single factor no-arbitrage short rate models to yield and volatility information. We note that the calculation of Arrow-Debreu prices for interest rate securities is analogous to solving the Kolmogorov Forward Equation. This insight allows us to implement implicit methods which exhibit more rapid convergence than explicit methods. We develop an algorithm for calibrating a model to match both yield and volatility curves which is general across single factor short rate models and also across finite difference techniques. Numerical examples confirm that our approach vastly improves computation times for derivative pricing

Consumer Governance in Electricity Markets

This paper examines switching decisions by households in the MainPower distribution area of New Zealand. The paper measures the extent to which customers switched in response to information about directors’ bonuses, marketing surrounding firm ownership, and work by the New Zealand Electricity Authority to promote switching behaviour. The first two events demonstrate the magnitude of consumer concerns about firm governance in an Electricity market. The latter provides a measure of search costs in a market where no central switching service is provided

Fixed come hell or high water? Selection and prepayment of fixed rate mortgages outside the US

We examine the decision to prepay a fixed rate mortgage in the UK Canada Ireland Australia and New Zealand. These countries are characterised by having substantial fees which are associated with breaking a fixed rate mortgage. We develop a model which allows for fluctuations both in banks' wholesale rates and credit spreads. We find that households can achieve economically significant benefits both from following an optimal prepayment strategy contingent on the break fee used by their bank and also by selection of fixed interest rate term and (where available) break fee structure

Probability of Default as a Function of Correlation: The Problem of Non-uniqueness

It is common practise in industry for traders to use copula models combined with observed market prices to calculate implied correlations for firm defaults. The actual feasibility of this calculation depends on the assumption that there is a one-to-one mapping between values of CDO tranches and the correlation implicit in the copula. This paper presents several proofs which demonstrate that for sufficiently large portfolios of underlying credits the probability of certain number of default are hump shaped as a function of the correlation. We follow our analytical results with some numerical examples of pricing CDOs demonstrating the non-uniqueness problem of implied correlations

Optimal discrete hedging in the Heston Stochastic Volatility Model

We present a closed form solution for the optimal hedging strategy in discrete time of an option whose underlying security follows the Heston Stochastic Volatility process. Our Monte Carlo simulations indicate that this significantly improves hedging performance at weekly and longer hedging intervals when compared to continuous time hedging procedures