Errata: Known Errors in "Heard on The Street" |

- Posted April 21, 2019. There is a typographical error on p195. In the middle of the page,
it says "E^∗[S^α(T)|S(T) ≥ K] = S^α(t)e^[α(r+[(α−1)/2]σ^2)(T−t)]N(d_{2−α})",
but the LHS of the equation is not stated correctly. The LHS should be E^∗[PAYOFF(S(T))], where PAYOFF(S(T))=S^α(T); if S(T) ≥ K,
and 0 otherwise. If you take the expectation as stated in the book, however, the RHS would be
the stated answer divided by N(d_2), which is not what we are looking for.
The key to understanding this error is that the payoff being considered is not PAYOFF(S(T))=S^α(T)|S(T) ≥ K, but
PAYOFF(S(T))=S^α(T) if S(T) ≥ K and 0 otherwise, and that these two payoffs are different.
All the formulae around this error are correct, and, with the correction mentioned here, this formula can be used
to correctly derive the powered option payoffs, as indicated. If you have one of my other books
*Basic Black-Scholes*, you can see a discussion of the distinction between these sorts of conditional payoffs in Section 8.3.6 Interpretation VI (of Black-Scholes). - Posted August 8, 2018. The book was revised/corrected late September 2018 to correct for the following error.
The corrected version has a footnote on p296 saying that it is a revised and corrected answer. If you purchased
the book in July, August, or September of 2018, however, then the answer to Question 4.57 on page 296-297 (i.e., choose p
to maximize my payoff given that my opponent will choose p'(p)) is not correct. The first nine lines are correct, down to Equation D.14. After
that the answer is simply incorrect and should be ignored.
In fact, your opponent looks at your expected payoff -20pp'+9p+9p'-4 and sees that it may be written as p'(9-20p)+9p-4. For fixed p, your opponent sees a linear function b.p'+a, where the coefficient is b=(9-20p) and the intercept is a=9p-4.

If b>0, your opponent wants to minimize b.p'+a and chooses the lowest possible p' value (p'=0). In this case, the expected payoff is a=9p-4. Note, however, that b>0 implies 9-20p>0 implies p<9/20. So, the expected payoff is a=9p-4<81/20-4=$1/20 (So, I get an expected payoff strictly less than $1/20).

If b<0, your opponent wants to minimize b.p'+a and chooses the highest possible p' value (p'=1). In this case, your expected payoff is 5-11p. Note, however, that b<0 implies 9-20p<0 implies p>9/20. So, the expected payoff is 5-11p<5-99/20=$1/20 (So, you get an expected payoff strictly less than $1/20).

If, however, b=0 (i.e., p=9/20), then your expected payoff is 9p-4=$1/20 for every p' value, which is superior to all of the above. So, you want to choose p=9/20.

- "Descartes' Rule of Signs" is spelled incorrectly as "Descarte's Rule of Signs" in three places (pp. 128, 130, 302).
- There is a typo on page 229. The equation on the last line should read "E(Nt) = pt · 1 + (1 − pt) · [1+E(Nt)]." The answer is otherwise correct.

- None yet.

- Posted October 7, 2015. Middle of page 97 "k=2,...n" should be "k=1,...,n". Page 98, "tirangle" should be "triangle."
- Posted October 16, 2015. Question 1.69 on p22. An "even number of heads" is what the interviewer wrote, but that is ambiguous (it is not about odd versus even). What he meant was "the same number of heads"
- Posted December 4, 2016. Answer 4.1 p199. First two equations should use x instead of v.
- Posted December 4, 2016. Last line p.226 "to rare" should be "too rare"
- Posted December 4, 2016. p.255 Peijnenburg and Atkinson 2013 is accidentally indented in the references. It is there but easy to miss.
- Posted April 6, 2016. p.20 Q1.59 "three men and one women" should be "three men and one woman"

- Posted January 23, 2015. In the third solution to the 90-coin problem (Q1.18 of the 15th edition, but appearing in earlier editions also), I mistakenly overlooked a case. In the case where A and B do not balance, and I swap the {27}s, it is possible that the scales tilt the opposite way. In this case, {27}B contains the coin known to be heavy or known to be light. Similarly if you go to the next step and swap {9}s.

- Posted July 24, 2012: Answer 1.6 on page 59 should say 15 plusminus 10 = 5, or 25. These correspond to S=10, or S=50. The case S=10 has a physical interpretation where the 5x10 box touches the circle on the other side of the square, but that is not consistent with the picture.

- Posted Sept 3, 2009: Question 1.16 about the ants is mis-stated. In the original question the ants can only walk parallel to the edge of the ruler. As such, they can only ever meet head on. With this amendment, the given answer is correct. Thank you to Craig Smith for finding this.
- Posted May 20, 2010: Answer 4.5 on page 191 says that 8/3 is the same as 2 1/3. Obviously 8/3 = 2 2/3.
- Posted November 24, 2010: Question 4.10 on page 37 is not worded quite clearly enough. There are multiple interpretations. My interpretation is that the game could be played repeatedly where the guest reveals a door to be empty.

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