Hi Carol,
Firstly, the book is great. It's very hard to find all those topics clearly covered in a single book.
I think I have found some typos/errors, at least as far as the 1st reprint is concerned. I hope you don't mind that I post them here...
P14: In the example f''(x)=2, so it is a local MINIMUM
P16: Last paragraph should start: 'The definition OF a return...'
P35: Last sentence of 1st paragraph: 'We USUALLY prefer to use log returns... '
P57: Eq I.2.23: 3rd sigma should have an additional subscript 'j not equal to i'?
P228: Last sentence of 3rd paragraph doesn't quite make sense: 'In particular, since we ...'
Regards,
Errata
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 Posts: 815
 Joined: Sun Sep 28, 2008 10:30 pm
Re: Errata
Many thanks for these. I have added those that I have not already located to an errata list for the 3rd printing  coming soon I hope. The last one is in the errata list for the 2nd reprinting, and the one on p57 is ok because I don't put 2 inside the sum. Many thanks for your help and please do let me know of any questions you have or more typos that you find!
Carol
Carol
Last edited by coalexander on Sun Nov 15, 2009 1:41 pm, edited 1 time in total.
Reason: ?Uw?D?
Reason: ?Uw?D?
Re: Errata
Hi,
At line 6 in page 92 of volume 1, it says
=0.25^2+0.15^2  0.75 *0.25 *0.15.
But, it should not be "=0.25^2+0.15^2  2*0.75 *0.25 *0.15" ?
Regards,
At line 6 in page 92 of volume 1, it says
=0.25^2+0.15^2  0.75 *0.25 *0.15.
But, it should not be "=0.25^2+0.15^2  2*0.75 *0.25 *0.15" ?
Regards,

 Posts: 815
 Joined: Sun Sep 28, 2008 10:30 pm
Re: Errata
Indeed! Thanks for spotting this Ricky. The result 0.02875 is correct, but the 2 was missing as you say. I'll add it to the list of corrections for the next printing,
Cheers, Carol
Cheers, Carol

 Posts: 1
 Joined: Thu Feb 11, 2010 4:25 pm
Errata P30, P56 in Quantitative Methods in Finance
Hi Carol,
First of all congratulation to your book!! Nicely and intuitively written
I think I have found a few typos/errors.
P30 Example I.1.9 I think the hessian matrix f31 and f32 should be 1 and 1 not 1 and 1 (obviously the same applies for f13 and f23)
P56 the return of a portfolio in matrix notation is either R=w’r if both w and r are column vectors or R=wr’ if both w and r are row vectors (I assume no mixing of row and column vectors since this makes the issue confusing). In section I.2.4.2 you write that r and w are k*1 vectors (so they are column vectors). So Formula R=w’R should apply which is what you have written in equation (I.2.22). So far I agree with what you write. What I do not understand is why you transpose vector r (you write r=(R1,....,Rk)’). You should either transpose both r and w or none of them. This is a common problem as far as I can see in many books. For me the only solution is for the author to use either always column or always row vectors (unless he specifies explicitly what each vector is). Otherwise you have the problem that the result may be a scalar or a matrix when one multiplies two vectors and it is not clear if the vectors are row or column vectors
Finally as a comment for your next edition of this book it would be nice if you could write something about portfolio returns if one uses log returns or discrete returns. In Page 25 you talk about the return on a linear portfolio. I have not seen the case when ones uses log return (which is tricky) since if one uses formula I.1.45 it is approximately correct (since the log of a sum is not the same as the sum of a log). A solution to this would be either to convert log returns to simple returns and the apply formula R=Sum(wiRi) or use the following formula R=ln(Sumwiexp(Ri)) (where Ri si the log return). This in my opinion is a tricky and important subject which few books explain thoroughly. (Campbell Lo and MacKinlay in the econometrics of financial markets talk about this but in a more mathematical approach since it is an “advanced” book).
Thanks
Panos Papanastasiou
First of all congratulation to your book!! Nicely and intuitively written
I think I have found a few typos/errors.
P30 Example I.1.9 I think the hessian matrix f31 and f32 should be 1 and 1 not 1 and 1 (obviously the same applies for f13 and f23)
P56 the return of a portfolio in matrix notation is either R=w’r if both w and r are column vectors or R=wr’ if both w and r are row vectors (I assume no mixing of row and column vectors since this makes the issue confusing). In section I.2.4.2 you write that r and w are k*1 vectors (so they are column vectors). So Formula R=w’R should apply which is what you have written in equation (I.2.22). So far I agree with what you write. What I do not understand is why you transpose vector r (you write r=(R1,....,Rk)’). You should either transpose both r and w or none of them. This is a common problem as far as I can see in many books. For me the only solution is for the author to use either always column or always row vectors (unless he specifies explicitly what each vector is). Otherwise you have the problem that the result may be a scalar or a matrix when one multiplies two vectors and it is not clear if the vectors are row or column vectors
Finally as a comment for your next edition of this book it would be nice if you could write something about portfolio returns if one uses log returns or discrete returns. In Page 25 you talk about the return on a linear portfolio. I have not seen the case when ones uses log return (which is tricky) since if one uses formula I.1.45 it is approximately correct (since the log of a sum is not the same as the sum of a log). A solution to this would be either to convert log returns to simple returns and the apply formula R=Sum(wiRi) or use the following formula R=ln(Sumwiexp(Ri)) (where Ri si the log return). This in my opinion is a tricky and important subject which few books explain thoroughly. (Campbell Lo and MacKinlay in the econometrics of financial markets talk about this but in a more mathematical approach since it is an “advanced” book).
Thanks
Panos Papanastasiou

 Posts: 815
 Joined: Sun Sep 28, 2008 10:30 pm
Re: Errata
Dear Panos,
Many thanks for your comments  it is very beneficial to me when readers point out the typos.
The Hessian on p30 has element f_13 eqaul to d^2L/dlambda dx and since L = ....[b:25qd4suh]minus[/b:25qd4suh]lambda(x + y + 4) I think f_13 is equal to 1. And similarly for f_13.
I write all vectors as column vectors, and on page 56 the line above (I.2.22) has already been corrected from the first printing, where the traspose for [b:25qd4suh]w[/b:25qd4suh] was omitted (and also, the first element came out as w_t not w_1, these errors being introduced by type setters). For readers with the first or second printing, which seems to include you, there is a list of errata on the page for Vol I on my website.
I agree that in the next edition I should add more to Section I.1.4.8 to address the difficulties encountered when trying to express the log return on a linear portfolio in terms of log returns on the assets, and I welcome your comment in this respect.
I hope you find the reading of Vol I worthwhile, and look forward to your future participation in the discussion forum.
Best Wishes, Carol
Many thanks for your comments  it is very beneficial to me when readers point out the typos.
The Hessian on p30 has element f_13 eqaul to d^2L/dlambda dx and since L = ....[b:25qd4suh]minus[/b:25qd4suh]lambda(x + y + 4) I think f_13 is equal to 1. And similarly for f_13.
I write all vectors as column vectors, and on page 56 the line above (I.2.22) has already been corrected from the first printing, where the traspose for [b:25qd4suh]w[/b:25qd4suh] was omitted (and also, the first element came out as w_t not w_1, these errors being introduced by type setters). For readers with the first or second printing, which seems to include you, there is a list of errata on the page for Vol I on my website.
I agree that in the next edition I should add more to Section I.1.4.8 to address the difficulties encountered when trying to express the log return on a linear portfolio in terms of log returns on the assets, and I welcome your comment in this respect.
I hope you find the reading of Vol I worthwhile, and look forward to your future participation in the discussion forum.
Best Wishes, Carol
Re: Errata
Hi, I hope I could ask the follwing questions.
1. Line – 3 in page 56 in volume 1, it is w = (w_1,….w_k)’ i.e. an apostrophe( ‘ ) might be missing ?
2. Line 17 in page 120 in volume 1, it is not P(2.5758 < Z < 2.578) = 0.99?
3. Line 15 in page 133 in volume 1, the value at row 1 & column 1 is n/sigma^2 . But, it is not  n/sigma^2 ? I think it makes sense as it is n/sigma^2 at row 1 & column 1 in the information matrix below which is minus value of the expectation value of that matrix.
4. In EX I5.6 in excel file Example_I5, Column D (labeled as B) is calculated by dividing y_i+1 – y_i by distance of h_i. But, why RHS (in next column E) is still be divided by h_i.
5. At the table of I5.1 in page 205 in volume 1, annualized mean for FTSE 100 is 4.62%. But, according to the worksheet (EM Algorithm Estimates) in the excel file Case Study_I.5_EM, it is 2.04%. I think cell B8 should refer to cell G2?
Comparion of the result in the excel file with those in the book
Mean Excel Book
FTSE100 2.04% 4.62%
SP500($) 4.62% 7.35%
FX Rate 7.35% 2.04%
I think the results in book are correct.
6. In line 4 in page 219 in volume 1 , the statement says log return is distributed as N( mu – sigma^2/2 , sigma^2). What I assume itlog return here is log return of asset price S. So, the distribution is not N( (mu – sigma^2/2)*t , sigma^2*t) rather than N( mu – sigma^2/2 , sigma^2) as stated in the book. Or do you mean that it is a daily return of asset price whose distribution is N( (mu – sigma^2/2)*1 , sigma^2*1) as S = S_0 exp{(mu – sigma^2/2) *1 + sigma * sqrt(1) * Z } where W/sqrt(t) = Z ~ N(0,1) in excel file Case Study_I.5_GBM.
7. I think that the distribution of probabilities in table I.6.1 is slightly different from those in attached excel file Examples_I6.
8. Eqn I.6.22 in page 236 in volume 1 states ln(1+x) = x – 1/2 x^2 . It did not mean that ln(1+x) = x for very small x as in I.1.2.5 ?
9. Line – 6 in page 244 in volume 1 , it says “…….. E( r ) = … is a target level for the portfolio return.”. It is not “........w’ E( r ) = … is a target level for the portfolio return”
1. Line – 3 in page 56 in volume 1, it is w = (w_1,….w_k)’ i.e. an apostrophe( ‘ ) might be missing ?
2. Line 17 in page 120 in volume 1, it is not P(2.5758 < Z < 2.578) = 0.99?
3. Line 15 in page 133 in volume 1, the value at row 1 & column 1 is n/sigma^2 . But, it is not  n/sigma^2 ? I think it makes sense as it is n/sigma^2 at row 1 & column 1 in the information matrix below which is minus value of the expectation value of that matrix.
4. In EX I5.6 in excel file Example_I5, Column D (labeled as B) is calculated by dividing y_i+1 – y_i by distance of h_i. But, why RHS (in next column E) is still be divided by h_i.
5. At the table of I5.1 in page 205 in volume 1, annualized mean for FTSE 100 is 4.62%. But, according to the worksheet (EM Algorithm Estimates) in the excel file Case Study_I.5_EM, it is 2.04%. I think cell B8 should refer to cell G2?
Comparion of the result in the excel file with those in the book
Mean Excel Book
FTSE100 2.04% 4.62%
SP500($) 4.62% 7.35%
FX Rate 7.35% 2.04%
I think the results in book are correct.
6. In line 4 in page 219 in volume 1 , the statement says log return is distributed as N( mu – sigma^2/2 , sigma^2). What I assume itlog return here is log return of asset price S. So, the distribution is not N( (mu – sigma^2/2)*t , sigma^2*t) rather than N( mu – sigma^2/2 , sigma^2) as stated in the book. Or do you mean that it is a daily return of asset price whose distribution is N( (mu – sigma^2/2)*1 , sigma^2*1) as S = S_0 exp{(mu – sigma^2/2) *1 + sigma * sqrt(1) * Z } where W/sqrt(t) = Z ~ N(0,1) in excel file Case Study_I.5_GBM.
7. I think that the distribution of probabilities in table I.6.1 is slightly different from those in attached excel file Examples_I6.
8. Eqn I.6.22 in page 236 in volume 1 states ln(1+x) = x – 1/2 x^2 . It did not mean that ln(1+x) = x for very small x as in I.1.2.5 ?
9. Line – 6 in page 244 in volume 1 , it says “…….. E( r ) = … is a target level for the portfolio return.”. It is not “........w’ E( r ) = … is a target level for the portfolio return”

 Posts: 815
 Joined: Sun Sep 28, 2008 10:30 pm
Re: Errata
Hi Ricky, Thanks for your very careful reading – as I already said in another forum, I very much appreciate this!
Here are my replies:
1. This should have been corrected already, but apparently not – will add
2. Yes, to 4 dps but I have rounded down to 2 in this case
3. The minus sign is there, outside the matrix
4. See the thread on Cubic splines, 2 below this
5. See the thread on EM algorithm immediately below this
6. Yes to both alternatives, because here the log return is ln(S_1/S_0) etc, not ln(S_t/S_0)
7. Last column second row should be 0.009 not 0.005 [already in corrections to first printing]
8. We do need a second order, not a first order approximation here, as stated above (I.6.22)
9. Yes, thanks, I will add this to the next reprinting!
Many thanks indeed! Carol
Here are my replies:
1. This should have been corrected already, but apparently not – will add
2. Yes, to 4 dps but I have rounded down to 2 in this case
3. The minus sign is there, outside the matrix
4. See the thread on Cubic splines, 2 below this
5. See the thread on EM algorithm immediately below this
6. Yes to both alternatives, because here the log return is ln(S_1/S_0) etc, not ln(S_t/S_0)
7. Last column second row should be 0.009 not 0.005 [already in corrections to first printing]
8. We do need a second order, not a first order approximation here, as stated above (I.6.22)
9. Yes, thanks, I will add this to the next reprinting!
Many thanks indeed! Carol
Figure I.1.5 and Figure I.1.6 vs. Same on CDROM
With respect to Figure I.1.5 and Figure I.1.6, in the CDROM content "Excel Workbook I.1.xls," the figures are reversed (i.e., in the book, Figure I.1.5 is The exponential function and I.1.6 is The natural logarithmic function; however, in the CDROM, the exponential function is found under the tab labeled Figure I.1.6 and the natural logarithmic function is found under the tab labeled Figure I.1.5).

 Posts: 815
 Joined: Sun Sep 28, 2008 10:30 pm
Re: Errata
Oops! Well spotted and many thanks indeed for letting me know Keith. I'll change this now, Carol
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