Typos and errors in Derivatives Markets, Second Edition, second printing

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

Errata in:

Unless otherwise noted, the errata listed here are also in the first printing.

Text Errata

70Footnote 3, the definition of arbitrage should be: there is an arbitrage opportunity if one diagram is nowhere below and somewhere above the other.
1002nd paragraph of section 4.3, "arbitrage" is misspelled.
101, Figure 4.7In the legend, "unhedged seller" should be "unhedged buyer"
165, problem 5.15Assume one year to maturity.
1972nd line from bottom, "short less than" should be "go long fewer than".
200, 3rd para, 4th lineShould read "heating degree-day contract for Minneapolis" instead of "cooling degree-day contract for Minneapolis"
218In the sixth line below "Eurodollar Futures", the equation should be "(100-92.8)/(4*100)=1.8%"
243Fifth line above Example 7.14, the equation reference should be 7.5 instead of 7.5.1.
255 Line 5, "oil" should be "interest rate".
327In the third line of text, "u and d are smaller than before" should be "u and d are closer to one"
341Equation 10.18, the last tau on the left-hand side of the equation should have the subscript "i".
376Table 12.1, the caption should refer to Figure 10.3 instead of 10.2
431Equation 13.11, there should be no leading minus sign on the left hand side of the equation
505, Fig 16.lLegend should read "equity" rather than "convertible equity"

507Last line, the reference to equation (16.3) should be (16.13).
532, Ex. 16.6The value of the down-and-in call should be CallDownIn($100,$60,0.4,0.06,10,0.01,60)=18.54, not 20.30. Thus, the sum of the two option prices is 41.11+18.54=59.65. The percentage increase in the value of the grant is 9.6%.
592If random variables are jointly normally distributed, their sum is normally distributed. The discussion at the top of the page omits the requirement of a joint normal distribution.
597Unnumbered equation at top of page: the exponent should be "(alpha - delta ...)" (the -delta is missing)
597Line below equation (18.22), "expected continuously compounded rate of appreciation" should be "continuously compounded expected rate of appreciation."
600In the unnumbered equation immediately above "Solving explicitly...", the d_2 should have a ^.
600"Similarly" is misspelled about 3/4 of the way down the page
601Bottom line, "62.09" should be 60.09. (All the prices in this example are slightly off in the rounding.)
604In eqs. 18.28, 18.29, and 18.30, S (to the right of the equals sign) should be S_0
604In the line of text immediately below eq 18.28, S > K should be S_t > K
609Delete the phrase "non-dividend paying" on lines 1 and 11.
609The term "kurtosis" is ambiguous. Spreadsheets (both Excel and Libreoffice) generally compute kurtosis as the measure defined in the book (E[(x-mu)^4]/sigma^4) less 3. This normalized measure is also called "excess kurtosis".
643See the entry for p. 609 regarding kurtosis.
663, Fig 20.1 On the vertical axis, the topmost value on the y-axis should be V(S_t+epsilon) (rather than V(S_t-epsilon))
687, Eq. 21.18 The left-hand side is reversed; it should be dV/V-E(dV)/V.
699Two referenced articles are not in the bibliography. They should be
  1. Alan J. Marcus and David M. Modest, Futures Markets and Production Decisions, Journal of Political Economy, 92(3) 1984, 409-426.
  2. Alan J. Marcus and David M. Modest, The Valuation of a Random Number of Put Options - An Application to Agricultural Price Supports, Journal of Financial and Quantitative Analysis, 21(1), 1986, 73-86.
788This is not a typo but an observation in case you are comparing the solution here to that in the original Cox-Ingersoll-Ross paper. The risk premium, phi, is defined differently in that paper and in Vasicek. I follow the Vasicek formulation so the sign of the risk premium appears to be reversed.
800, Figure 2.4 The first up node is missing an equals sign between r_u and R_h.
844 The line above eq 26.8 should say "expected recovery", not "expected recovery rate".
907 The definition of arbitrage should be: there is an arbitrage opportunity if one diagram is nowhere below and somewhere above the other.

Errata for web appendices

Table 9.12There is a typesetting error. Here is the corrected table.

Spreadsheet errata

Optall2.xls, CEV module In two locations in the cevcall function, there is a typo. The fragment "cevcall = s^exp(-a*t)" should read "cevcall=s*exp(-a*t)". Corrected in optall2a.xls
Optall2.xls, Vasicek pricing functionWhen a=0, should be "AA = Exp(-0.5 * sig * ...". Corrected in OptAll2c.xls.

Solution Manual errata

Problem 5.8 Table heading should state "in 6 months"
Problem 9.14 Second sentence of solution, the strike is now one share of AOL
Problem 12.2 The put solutions are for an American put. The correct answers for the European put should be 1.6723 (8), 1.5687 (9), 1.6624 (10), 1.5564 (11), and 1.6538 (12)

© Copyright 2008, Robert McDonald. You can send me mail at r-mcdonald@northwestern.edu.

Last modified: Wed Jun 15 12:19:20 CDT 2016