The gains from trade revisited

This paper revisits the issue of whether countries gain more from trading with countries that are similar to themselves, or with countries that are different. A model based on relative endowment and technological differences across countries is developed. The main result is that a country may experience a region of increasing gains from trade as its trading partner becomes more similar to itself in terms of relative endowments. The model also predicts that for countries with sufficiently similar relative endowments, both factors of production may experience gains from trade.     

Recursive preferences,learning and large deviations

We estimate the relative contribution of recursive preferences versus adaptive learning in accounting for the tail thickness of price–dividends/rents ratios. We find that both of these sources of volatility account for volatility in liquid (stocks) but not illiquid (housing) assets.     

Valuing employee reload options under the time vesting requirement

Upon the exercise of an employee stock option, the embedded reload provision entitles the holder to receive additional units of new options from the employer. The number of units of new options received is equal to the number of shares tendered as payment of strike and the new strike is set at the prevailing stock price. The reload provision may be subject to a time vesting requirement, that is, after each exercise, the employee is prohibited from exercising the reload until the end of a vesting period. In this paper, we construct an efficient numerical algorithm that computes the market value of the employee reload options under a time vesting requirement. Also, we explore the analytic properties of the price functions and optimal exercise policies of the employee reload options.     

Optimal interest rate rule in a DSGE model with housing market spillovers

This paper studies the optimal interest rate rule in a DSGE model with housing market spillovers (Iacoviello and Neri, 2010). We find that the optimal rule responds to house price inflation even when the stabilization of house price is not among the objectives of the policymaker, and that the strength of the response depends crucially on a few structural parameters.     

Output volatility of five crisis-affected East Asia economies

A decade has passed since the Asian financial crisis (AFC) in 1997, and attention is drawn to the output performance of the crisis-affected economies in East Asia. Using the Hodrick–Prescott (HP) filter, this paper examines the growth volatility of GDP, its components and the stock market of five East Asia economies of Japan, Singapore, South Korea, Chinese Taipei and Hong Kong Special Administrative Region (SAR). Empirical evidences based on quarterly data show that output volatility for both Singapore and South Korea has increased after the AFC. For the GDP components, trade is a major factor in lowering GDP volatility in Chinese Taipei. The Hong Kong SAR economy has experienced an increase/decrease in the volatility of investment/private consumption. Among the five East Asia economies, government intervention is obvious in Singapore. The stock markets in both Hong Kong SAR and Chinese Taipei showed stronger ability in absorbing shocks.     

Beijing meeting puts China on the tourist map

In Beijing from 28 February–4 March 1983. 1000 delegates from 45 countries came together for the first China International Tourism Conference. Sponsored jointly by the China National Tourism Adminis- tration and the Civil Aviation Administration of China, this conference marked an important point in the development of the tourist industry of that country. Chuck Y. Gee, Dean of the School of Travel Industry Management at the University of Hawaii, and author of an article on the tourist industry in China in this issue, attended the conference.     

Cost structure and productivity growth of the Taiwanese international tourist hotels

This study investigates the cost structure and economic implications of the Taiwanese international tourist hotel industry. A multi-product translog cost function with three inputs and three outputs is estimated using seemingly unrelated regression estimation and three-stage least squares. A balanced panel dataset consisting of 47 international tourist hotels in Taiwan over the period 1997–2001 was obtained from Taiwanese Tourism Bureau and used to estimate the cost function. The results show that both scale and scope economies exist in the Taiwanese international tourist hotel industry. In addition, productivity growth is positive over the study period. Managerial and policy implications for the Taiwanese international tourist hotel industry are also discussed.     

Optimal arbitrage strategies on stock index futures under position limits

Assuming the absence of market frictions, deterministic interest rates, and certainty in dividend payouts from the stocks in the index basket, an arbitrageur can lock in the profit of a positive (negative) arbitrage basis in a stock index futures by adopting a short (long) futures strategy. In addition, the arbitrageur may improve the arbitrage profit by adopting the so‐called early unwinding strategy of liquidating the position before maturity, or more aggressively from the long position directly to the short position or vice versa. In this study, we examine the optimal arbitrage strategies in stock index futures with position limits and transaction costs. In our analysis, the index arbitrage basis is assumed to follow the Brownian Bridge process. The model formulation of the option value functions leads to a coupled system of variational inequalities. We determine the values of the arbitrage opportunities and the optimal threshold values of the arbitrage basis at which the arbitrageur should optimally close an existing position or open a new index arbitrage position. In particular, we examine the impact of transaction costs on the index arbitrage strategies. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:394–406, 2011