Typos and errors in Derivatives Markets, second printing

For 3rd Edition errata, and up-to-date information about my R package, derivmkts, please see this page

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

81Third line below 3.5 heading: should refer to Chapter 15, not Chapter 16.
111, Fig 4.12For gold prices below 420, the net profit on the paylater is $25.40, not $20.78 as shown in the figure.
129First sentence, "index" should read "asset".
132Last sentence, end of 2nd paragraph, should say "exp(delta*T) times as many shares as we had initially."
145First line in third paragraph, "significantly" is misspelled.
2054th line above subsection head, "expressions" is misspelled".
210The 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".
211On the last line at the bottom of the page, "borrowing rate" should be "lending rate".
215, fn 5The 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. 7.5In the displayed equation, the right-hand side should be "3.000" instead of "-3.000".
259, Eq. 8.10Should have "=0" on the right-hand side
261, Unnumbered equationShould have "=0" on the right-hand side
288, Table 9.5In the third line of the caption, should be exp(rT) (capital T).
294First line, "0" should be "$4".
303, Table 9.12In the "Totals" line, the expression (K_3-S_T) should be beneath (1-lambda), one column to the right.
311The expression on the 7th line above "Risk-Neutral Pricing" subhead should be (C_u-C_d)/(S_u-S_d) (there should be parentheses).
323Fourth line from the bottom of the page, the Greek delta should be lower case (representing the dividend yield).
327Third line above "Chapter Summary", "Mechnanically" (spelling)
339Third line below "Multi-period example": "true discount factor" should be "true discount rate".
368Two lines below equation (12.4), "1-N(x_1)" should be "1-N(x)".
369Equation bottom of page, lower case "t" should be upper-case "T".
370, line 4The "t" in the exponent should be 1 a capital T.
374In 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 12.4To be consistent with the answer in the solution manual, compute the call price rather than the put price.
417In equation (13.10) and the displayed equation above, there should be a subscript t on the S^2 in the Gamma term.
423, Figure 13.4The 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. 14.2This 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.
505In the last line, "gold" should be "golf".
542In the sentence before (17.4) the S should have a zero subscript, not a t subscript.
543The "x" in (17.5) should be capitalized.
5545th line following Example 17.4, "shutdown trigger" should be "investment trigger".
579Two equations at the top of the page, "N^{-1}( p/2 )" should be "N^{-1}(1-(p / 2) )".
585third line inside table 18.2: in "S_t -1", should be "S_{t-1}" (i.e., "t-1" is the subscript)
591, Fig 18.6The 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)
697In the second line, replace "one-half" with "twice"
707, eq 22.31b"r" in the exponent should be r subscript f
709, Fig 22.4In 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.
729Just above eqn (23.24), sentence should read "Substituting equation (23.23) into equation (23.22)..."
734In 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. 23.3In the first line, "Figure 23.2" should be "Figure 23.3"
741, Ex. 23.4In the first displayed equation, the bond price should be P(2,3;j).
769, Ex. 24.7In the second to last line, should be "greater than -$1,135,421."
773, Eq 24.16The second term on the right-hand side should contain the 15-year variance, not the 10-year variance.
793Fifth line from bottom, "Continously"
795Third line after "Changing Interest Rates", "continouously"
795Seventh line from bottom, "Continously"
7969th line of text from the bottom, should say "e^{0.06}-1 = 6.184%
858, bibliographyMcMillan reference should be 4th edition, 2001.

© Copyright 2003, Robert McDonald. You can send me mail at r-mcdonald@northwestern.edu.

Last modified: Wed Jun 15 12:18:13 CDT 2016