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. 695 In equation (20.30) the definition of \(h_2\) has a spurious minus sign. The formula should read \(h_2 = \left( \frac{1}{2} - \frac{r-\delta}{\sigma^2}\right) - g\)
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”
\[ \frac{F_{t,T}}{P_{t,T}} + \frac{1}{P_{t,T}}\left[F_{T,T} - F_{t, T}\right] = \frac{F_{T,T}}{P_{t,T}} = \frac{S_{T}}{P_{t,T}} \]
Binomial and perpetual option calculations exhibited errors for extreme values of inputs (e.g., very low volatility) Fixed in optall3a.xls