The volatility of temperature and pricing of weather derivatives

We propose an Ornstein–Uhlenbeck process with seasonal volatility to model the time dynamics of daily average temperatures. The model is fitted to approximately 45 years of daily observations recorded in Stockholm, one of the European cities for which there is a trade in weather futures and options on the Chicago Mercantile Exchange. Explicit pricing dynamics for futures contracts written on the number of heating/cooling degree-days (so-called HDD/CDD futures) and the cumulative average daily temperature (so-called CAT futures) are calculated, along with a discussion on how to evaluate call and put options with these futures as underlying.     

Mergers and the Value of Antitrust Deterrence

While the U.S. has pursued a vigorous antitrust policy towards horizontal mergers over the past four decades, mergers in Canada have until recently been permitted to take place in a virtually unrestricted antitrust environment. The absence of an antitrust overhang in Canada presents an interesting opportunity to test the conjecture that the rigid market share and concentration criteria of the U.S. policy effectively deters a significant number of potentially collusive mergers. The effective deterrence hypothesis implies that the probability of a horizontal merger being anticompetitive is higher in Canada than in the U.S. However, parameters in cross-sectional regressions reject the market power hypothesis on samples of both U.S. and Canadian mergers. Judging from the Canadian evidence, there simply isn't much to deter.     

Merger Negotiations with Stock Market Feedback

Do preoffer target stock price runups increase bidder takeover costs? We present model‐based tests of this issue assuming runups are caused by signals that inform investors about potential takeover synergies. Rational deal anticipation implies a relation between target runups and markups (offer value minus runup) that is greater than minus one‐for‐one and inherently nonlinear. If merger negotiations force bidders to raise the offer with the runup—a costly feedback loop where bidders pay twice for anticipated target synergies—markups become strictly increasing in runups. Large‐sample tests support rational deal anticipation in runups while rejecting the costly feedback loop.     

Big business and small states: Unilever and Norway in the interwar years1

In 1930, Unilever tried to take control of Lilleborg, Norway's most important producer of soap and vegetable oil, with the aim of wiping out most of Norway's independent margarine and soap industry. However, as the purchase was dependent on government concession, Unilever became embroiled in a power struggle with the Norwegian political authorities. The company was strongly criticized by Norwegian nationalists. The question of whether or not to let Unilever go forward became one of the most contested questions in Norwegian politics in the period. In the end, Unilever was allowed to go ahead with the purchase, but in return the company was forced to make substantial concessions. Expanding on Jones's framework for understanding the balance of power between multinationals and host governments, in this article it is argued that we must look beyond firm specific assets and a cost‐benefit oriented analysis of the relationship between multinationals and host countries to understand the end result. In this case, nationalism had a decisive impact. Unilever's acquisition of Lilleborg and the Norwegian response thus contributes to our understanding of the nature of multinational enterprise in the interwar period and of the political economy of foreign direct investment in general.     

Trends in Intergenerational Mobility across Offspring's Earnings Distribution in Norway

Using register data for Norwegian cohorts born in 1950, 1955, and 1960, we found intergenerational earnings mobility to be high, and lower at the lower end of offspring's earnings distribution than at the upper end. The findings also indicate that mobility has increased over time and that the increase is somewhat higher for lower earnings. The increase in earnings mobility over time is larger for women than for men.