## Explanation of color-coding

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.

## Text errata

• 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”

## Errata for Online Appendices

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

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

## Spreadsheet errata

• Binomial and perpetual option calculations exhibited errors for extreme values of inputs (e.g., very low volatility) Fixed in optall3a.xls