The problem studied is the pricing of options on the CBOE Skew index. The option pricing theory developed seeks to hedge the risk using positions in the market for options on a related asset and the option is then priced at the cost of this hedge. The theory is applied to pricing VIX options...

In this paper the authors introduce the new concept of implied liquidity on the basis of the recent developed two-way price theory (conic finance). Implied liquidity isolates and quantifies in a fundamental way liquidity risk in financial markets. It is shown on real market option data on the...