Colors denote severity:

errors or omissions unlikely to affect understanding of the material

errors or omissions that could cause confusion

errors or omissions where numbers, equations, or statements are incorrect.

**Acknowledgements**: Bjarne Astrup Jensen made many helpful comments**P. 13**, “International Accounting Standard Board” should be “International Accounting Standards Board”**P. 17**, Box 1.2, 2nd paragraph: “Convention” should be “election”, and “If you sold all four” should be “If you sold both”**P. 104**Third paragraph, “firms appears” should be “firms appear”**P. 104**10th line from bottom: should be “forward contracts have zero value*at inception*”**P. 161**Appendix, title should be “Taxes and the Forward Price” (not “rate”)**P. 183**Line 3, “In 2006 and 2008” should be “In 2006 and 2010”.**P. 205**Table 7.2, “01 in the second line should be \(-1\)**P. 205**Table 7.3, In the third column, \(r_1\) should be \(r_t\) (three occurrences). Also, in the first line, “Buy \(1+r_0(t, t+s)\) zeros”**P. 217, Fig 7.3**The caption should say that there are 2.594 zero coupon bonds, not 2.718. The figure is nevertheless correct.**P. 246**, 2nd equation from bottom, there is an extra space in “100,000,000”**P. 274**, paragraph beginning “We can equate the scale…” The second sentence should be “…scale down the dollar-denominated euro calls, holding 1/1.20 of them, or we can scale up the euro-denominated dollar puts, holding 1.20 of them.”**P. 277**, equation 9.12. The final term should be \(PV_{0,T}[F_{0,T}]\)**P. 281**, 4th line of caption in Table 9.5: equation should be “\(K_T = e^{rT}\)”.**P. 320**In problems 10.6 - 10.10, there is no need to specify \(\sigma\) with \(u\) and \(d\) given.**P. 410**, footnote 1: “chapter 22” should be “chapter 23”**P. 452/453**, third line from bottom, “k” should be uppercase: “Typically, \(\lambda = K_1/K_2\).” Same correction in Example 15.7.**P. 476, Box 16.1**: fourth line from end, “for details (see” should be “(for details, see”.**pp. 546-562**In Chapter 18, both lowercase z and uppercase Z are used to represent a standard normal random variable. For clarity, all should be uppercase: 546 (3rd displayed expression, 3rd line from bottom); 547 (figure 18.2, two occurrences); 548 (first three unnumbered equations and eq 18.4); 549 (eq 18.7 and example 18.2 (two occurrences)); 554 (second sentence above eq 18.21); 555 (first sentence below example 18.4); 557 (2nd line from bottom); 562 (first two displayed equations in sect 18.5) in chapter 20 (see 20.39).**p. 558**third line from bottom, 62.09 should be 60.09**p. 565**The term “kurtosis” can mean either \((E[(x-\mu)^4]/\sigma^4)\) (as defined in the book) or \((E[(x-\mu)^4]/\sigma^4-3)\), which is how it is typically defined in spreadsheets and many statistical packages. Using the second measure, also sometimes called “excess kurtosis”, the kurtosis of the normal distribution is zero.**p. 567**In Figure 18.5 the sample data points are on the y-axis. The text presumes that data points are on the x-axis, so the x and y-axis should be reversed in the figure. Corrected plots are here (eps) and here (pdf).**p. 588**4th line from bottom: The reference should be to equation (19.9) instead of (19.10).**p. 596**See the entry for p. 565 regarding the definition of kurtosis**p. 618**Eq 20.29 should have no tilde over the Z and eq 20.30 should have a tilde over the Z**p. 622**Equation 20.39 and line after, dz should be dZ (three occurrences)**p. 623**There should be a Greek delta (\(\delta\)) subtracted from alpha (\(\alpha\)) in eq 20.42 and in the displayed equation for dS/S below.**p. 643**There should be a Greek delta (\(\delta\)) subtracted from alpha (\(\alpha\)) in eq 21.38.**p. 754**In equation 25.7, delete the “x” multiplying the final term.**p. 780**The final displayed equation should be \(d_2 = d_1 - \sigma\sqrt{T-t}\) (not \(\sqrt{T}\))**p. 780**The final displayed equation should be \(d_2 = d_1 - \sigma\sqrt{T-t}\) (not \(\sqrt{T}\))**p. 818**The right-hand side of the first line in the “Distance to default” equation should be \(\frac{\text{E}[\ln(A_t)] -\ln(\bar B)}{\sigma\sqrt{T-t}}\). The idea is to compare \(A_t\) and \(\bar B\) using lognormal calculations.**p. 888**Definition of “heat rate”: “kilowatt/hour” should be “kilowatt-hour”

- In Web Appendix 5C, the equation following 5.23 should be (compare the terms between the equals signs)

\[ \frac{F_{t,T}}{P_{t,T}} + \frac{1}{P_{t,T}}\left[F_{T,T} - F_{t, T}\right] = \frac{F_{T,T}}{P_{t,T}} = \frac{S_{T}}{P_{t,T}} \]

Binomial and perpetual option calculations exhibited errors for extreme values of inputs (e.g., very low volatility)

**Fixed in optall3a.xls**