The paper demonstrates that a pure-diffusion 3/2 model is able to capture the observed upward-sloping implied volatility skew in VIX options. This observation contradicts a common perception in the literature that jumps are required for the consistent modelling of equity and VIX derivatives. The...

The goal of this work is to examine the static replication of path-dependent derivatives such as realized variance swaps, using more standard products such as forward-start binary (i.e. digital) double calls and puts. We first examine, following Carr and Madan (2002), the static replication of...