The availability of high-frequency data on transactions, quotes and order flow in electronic order-driven markets has revolutionized data processing and statistical modeling techniques in finance and brought up new theoretical and computational challenges. Market dynamics at the transaction...

We propose and study a flexible modeling framework for the joint dynamics of an index and a set of forward variance swap rates written on this index, allowing options on forward variance swaps and options on the underlying index to be priced consistently. Our model reproduces various empirically...