Jackknifing Bond Option Prices

Prices of interest rate derivative securities depend cruciallyon the mean reversion parameters of the underlying diffusions.These parameters are subject to estimation bias when standardmethods are used. The estimation bias can be substantial evenin very large samples and much more serious than the discretizationbias, and it translates into a bias in pricing bond optionsand other derivative securities that is important in practicalwork. This article proposes a very general and computationallyinexpensive method of bias reduction that is based on Quenouille's(1956; Biometrika, 43, 353–360) jackknife. We show howthe method can be applied directly to the options price itselfas well as the coefficients in the models. We investigate itsperformance in a Monte Carlo study. Empirical applications toU.S. dollar swap rates highlight the differences between bondand option prices implied by the jackknife procedure and thoseimplied by the standard approach. These differences are largeand suggest that bias reduction in pricing options is importantin practical applications.     

Selected Economic Analysis at the Antitrust Division: The Year in Review

Of the many activitiesof the Antitrust Division of theU.S. Department of Justice, we havesummarized some that raise interestingeconomic issues. We describe recentimprovements in the methodology to beused in ``coordinated effects' analysisof mergers. We also discuss four casesbrought by the DOJ that raise issues ofmarket definition, the influence ofcommon partial ownership of competitors,and the effects of fringe suppliers inconstraining collusion by large firms.     

Reframing science and other local knowledge traditions

By recognizing science as a set of local practices it becomes possible to ‘decentre’ it and develop a framework within which all knowledge systems can be equitably compared. It is argued that all knowledge traditions are spatial in that they link people, sites and skills. In order to ensure the continued existence of the diversity of knowledge traditions rather than have them absorbed into the great imperialist archive we need to enable disparate knowledge traditions to work together through the creation of a third space in which the social organization of trust can be negotiated.     

PROJECTION MODELS FOR U.K. FOOD AND AGRICULTURE*

Successful policy planning depends to a large extent on being able to predict the consequences of alternative measures. In the case of agriculture, it is important to know how the future pattern of supply and demand in this sector will be affected by government action on specific issues such as farm price support, and by expected trends in macro-economic variables such as national incomes and population. This paper illustrates the application of a model of U.K. agriculture to the projection of changes in the production and consumption of food and agriculture products between now and 1975. The demand projections show the effect of important levies, and of joining the E.E.C, on future expenditure on food, while the supply projections show how the output of a number of agricultural commodities will be affected by adjusting farm prices towards E.E.C. levels.     

Using Limited Information to Support the Decision to Launch a New Product in the Fruit Juice Market: A Teaching Case Study

Fresh Juice Incorporated (FJI) is in the process of determining whether it should launch a new fruit juice, Genetically Enhanced (GE) Juice. The GE Juice meets consumers' demands for a tasty, nutritious product and it would be the first new juice product in the last fifteen years. Before FJI decides to launch GE Juice, it must analyze the uncertainty surrounding market size, market share, and price of GE Juice. Finally, if FJI decides to launch GE Juice, then they must decide if they will bottle the juice themselves or outsource this process. This case teaches students how to discuss the strategic implications of launching a new product and develop a net present value and financial feasibility simulation model given limited information.