All first printing errors listed here have been fixed in the second printing (January 2003).

o

Page | Item |
---|---|

81 | Third line below 3.5 heading: should refer to Chapter 15, not Chapter 16. |

111, Fig 4.12 | For gold prices below 420, the net profit on the paylater is $25.40, not $20.78 as shown in the figure. |

129 | First sentence, "index" should read "asset". |

132 | Last sentence, end of 2nd paragraph, should say "exp(delta*T) times as many shares as we had initially." |

145 | First line in third paragraph, "significantly" is misspelled. |

205 | 4th line above subsection head, "expressions" is misspelled". |

210 | The text should make clear that "r_0(t,t+s)" is not an annualized rate of return. Also, in step 2 of the strategy, it should say "Borrow and sell". |

211 | On the last line at the bottom of the page, "borrowing rate" should be "lending rate". |

215, fn 5 | The expected error should be divided by 1+r_{forward}, not 1+r_{forward}^2. This changes the estimate of convexity bias to 614 instead of 603. |

220, Ex. 7.5 | In the displayed equation, the right-hand side should be "3.000" instead of "-3.000". |

259, Eq. 8.10 | Should have "=0" on the right-hand side |

261, Unnumbered equation | Should have "=0" on the right-hand side |

288, Table 9.5 | In the third line of the caption, should be exp(rT) (capital T). |

294 | First line, "0" should be "$4". |

303, Table 9.12 | In the "Totals" line, the expression (K_3-S_T) should be beneath (1-lambda), one column to the right. |

311 | The expression on the 7th line above "Risk-Neutral Pricing" subhead should be (C_u-C_d)/(S_u-S_d) (there should be parentheses). |

323 | Fourth line from the bottom of the page, the Greek delta should be lower case (representing the dividend yield). |

327 | Third line above "Chapter Summary", "Mechnanically" (spelling) |

339 | Third line below "Multi-period example": "true discount factor" should be "true discount rate". |

368 | Two lines below equation (12.4), "1-N(x_1)" should be "1-N(x)". |

369 | Equation bottom of page, lower case "t" should be upper-case "T". |

370, line 4 | The "t" in the exponent should be 1 a capital T. |

374 | In the last paragraph of the "Delta" section, the put delta is the call delta minus one only if the continuously-compounded dividend yield is 0 (otherwise the difference in deltas is exp(-delta*t)). |

395, Prob 12.4 | To be consistent with the answer in the solution manual, compute the call price rather than the put price. |

417 | In equation (13.10) and the displayed equation above, there should be a subscript t on the S^2 in the Gamma term. |

423, Figure 13.4 | The text should make clear that the figure is drawn assuming an option on one share, unlike Figure 13.2, which is drawn assuming an option on 100 shares. |

444, Ex. 14.2 | This example is correct but a little
cryptic. The American option in this example is
valued using the procedure described at the bottom of
p. 443. The stock price ($100) and PV(strike) (88.223) are
straightforward. The compound option can be valued using the
"CallonPut" function (see p. 838) that comes
on the CD with the book. Specifically,
CallonPut(100, 90, 3.805, 0.30, 0.08, 0.2493, 0.4164, 0) = 0.9987. Thus the value of the American option is Stock - PV(Strike) + CallonPut = 100 - 88.223 + 0.999 = 12.776 (This differs slightly from the answer in the book because of rounding.) |

469, Eq. (15.7) | S_0 should not be in the equation. |

505 | In the last line, "gold" should be "golf". |

542 | In the sentence before (17.4) the S should have a zero subscript, not a t subscript. |

543 | The "x" in (17.5) should be capitalized. |

554 | 5th line following Example 17.4, "shutdown trigger" should be "investment trigger". |

579 | Two equations at the top of the page, "N^{-1}( p/2 )" should be "N^{-1}(1-(p / 2) )". |

585 | third line inside table 18.2: in "S_t -1", should be "S_{t-1}" (i.e., "t-1" is the subscript) |

591, Fig 18.6 | The normal plots are for a variable distributed N(3,5). If the distribution was N(0,1), the plot would pass through the point (0,0) and (0,0.5). |

672, fn 12 | "German" should be "Geman" (it is correct in the references) |

697 | In the second line, replace "one-half" with "twice" |

707, eq 22.31b | "r" in the exponent should be r subscript f |

709, Fig 22.4 | In Figure 22.4 (and hence in Example 22.9) the Time 1 Nikkei values and associated risk-neutral probabilities are incorrect. The corrected example is here. Note that the quanto forward price is correct. |

729 | Just above eqn (23.24), sentence should read "Substituting equation (23.23) into equation (23.22)..." |

734 | In the definition of A(t,T) (near the top of the page), the "B^2 sigma^2" term should be "B(t,T)^2 sigma^2" |

739, Ex. 23.3 | In the first line, "Figure 23.2" should be "Figure 23.3" |

741, Ex. 23.4 | In the first displayed equation, the bond price should be P(2,3;j). |

769, Ex. 24.7 | In the second to last line, should be "greater than -$1,135,421." |

773, Eq 24.16 | The second term on the right-hand side should contain the 15-year variance, not the 10-year variance. |

793 | Fifth line from bottom, "Continously" |

795 | Third line after "Changing Interest Rates", "continouously" |

795 | Seventh line from bottom, "Continously" |

796 | 9th line of text from the bottom, should say
"e^{0.06}-1 = 6.184% |

858, bibliography | McMillan reference should be 4th edition, 2001. |

© Copyright 2003, Robert McDonald. You can send me mail at r-mcdonald@northwestern.edu. Last modified: Fri Nov 02 12:39:09 Central Daylight Time 2007