Financial Calculus Errata

Financial Calculus
An introduction to derivative pricing
Corrigenda et errata

Errata

Here is the full list of known errata. Only those marked (*) are still visible in the most current printing:

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Page viii(*). The fourth line of paragraph 4 is missing "of", in text that should read "leads to the definition of the market price of risk".
Page 37(*). The last line of paragraph 2 should say "then" instead of "than" in "then that claim would have been synthesized".
Page 56(*). Six lines from the bottom, should be "than it is" instead of "then it is"
Page 58(*). Second displayed equation from bottom should have the integrand on the left-hand-side as the square of dW(s), rather than dW(t).
Page 67. Figure 3.12 has incorrect entries in the lower two nodes at time 2. In both nodes, the subscripts `2' should be `3' in both numerator and denominator.
Page 82. The fourth line of the last paragraph should finish with
Page 89. The equation prior to the self-financing strategies theorem accidentally replaces the stock holding with the bond holding. The displayed equation (line 17) should read

A similar error is present on line nine.
The theorem on self-financing strategies itself is definitively correct.
Page 91. The last line of paragraph 4, is missing a t from the drift term of S_t, thus:
Page 100(*). The end of line 7 should be "At time 0 we" and not "At time t we".
Page 102. The dollar value of the replicating portfolio accidentally replaces the bond holding with the stock holding. The equation at the end of line 14 should read
Page 112. The SDE for the discounted reinvested stock price (lines 9-10) has an incorrect drift term, which lacks the Ito correction. It should be:
Page 127. The forward FX rate in the first line is missing the exponential function and should be C₀exp((r-u)T).
Page 137(*). The expression for dr on line 5, should have a final dt multiplying its last term to make it into an infinitessimal.
Page 158(*). The fourth line of text from the bottom of the page as a repeated "and and", which should just be "and".
Page 162. The sentence in the middle of the page beginning `An advantage of the HJM framework' is missing the word `to' from the phrase `we are free choose'.
Page 174(*). In the third displayed equation, the second term in the summand should be y_i(T), not y_i(t).
Page 188. The integral on line 6 should be with respect to the measure P rather than Q. Further, the integral on the last line of the first paragraph should be
Page 194. In the displayed equation for C_t, line 4, its volatility should only be a function of t and not of both t and T.
Page 195(*). In the second, fourth and fifth displayed equations the second argument of both η and ξ should be u and not T.
Page 203(*). The last reference on the page should be to the Journal of Financial Economics not the Journal of Finance.
Page 209. In the last line of Table A.1, the stock price should be 120, and not 100.
Page 213. Answer to exercise 3.9, the first displayed equation should say (twice) W_s rather than W_t. That is:
Page 216. The definition of Autoregressive should read "of a process, that it is mean-reverting"

Bonus extra text #1: Exotic Options

Six pages of web-only text on exotic options, such as lookbacks and knockouts, which were edited out in the final production stages, are available as an Acrobat PDF 92k file, or PostScript 200k file.

Bonus extra text #2: Ho and Lee model formula

Two pages of web-only text on the derivation of the formula for g on page 152, which expresses the Ho and Lee model in HJM terms. Acrobat PDF 48k file, or PostScript 90k file.

Our thanks to eagle-eyed readers: John Bossert, Edward Chen (and bar), Lester Coyle (and double bar), Matthieu Mignon, Martin O'Sullivan, Mitesh Patel, Lee Russell, Michael Sherris, Michael Tari (and bar), Gordon White (and double bar), Zhongmin Xiong, Xiao Chen.

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