This book consists of 11 papers based on research presented at the KIER-TMU International Workshop on Financial Engineering, held in Tokyo in 2009. The Workshop, organised by Kyoto University's Institute of Economic Research (KIER) and Tokyo Metropolitan University (TMU), is the successor to the...

This study examines the effect of fractional volatility on option prices. To this end, we develop an approximation method for the pricing of European-style contingent claims when volatility follows a fractional Brownian motion. Through extensive numerical experiments, we confirm that the...

In the option pricing literature, it is well known that:(i) the decrease in the smile amplitude is much slower than standard stochastic volatility models and, (ii) the term structure of the at-the-money volatility skew is approximated by a power-law function with the exponent close to zero....