[OS X TeX] eps to pdf conversion

[Themis Matsoukas]

I am  running into this problem on my laptop  but not on my imac. My tree structure is this:

../hw-folder/main.tex
../problem-dbase/problem1/problem.tex
../problem-dbase/problem1/fig.pdf
../problem-dbase/problem1/fig.eps

main.tex reads problem.tex which loads the figure using \includegraphics{fig}. If fig.pdf exists, all is well. But if I delete fig.pdf while leaving fig.eps intact, I get:

!!! Error: Output filename '../problem-dbase/problem1/fig.pdf' not allowed in restricted mode.


../problem-dbase/problem1/problem.tex:23: Package pdftex.def Error: File `../pr
oblem-dbase/problem1/fig.pdf' not found.

See the pdftex.def package documentation for explanation.
Type  H <return>  for immediate help.
 ...                                              
                                                  
l.23 \includegraphics{fig}
                          
? x

Strangely, I don't get this problem on my imac. On the imac,  if fig.pdf does not exist, it is generated on the fly from the eps file. Both computers are on texlive 2012 and the problem started after the update. Obviously the two setups are not identical but I can't think what i did differently. 

Themis