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Fitting the Heston Stochastic Volatility Model to Chinese Stocks


  • Ahmet Goncu
  • Hao Yang


In this article we investigate the goodness-of-fit of the Heston stochastic volatility model for the Shanghai composite index and five Chinese stocks from different industries with the highest trading volume. We have jointly estimated the parameters of the Heston stochastic volatility for the daily, weekly and monthly timescales model by employing a kernel density of the empirical returns to minimize the mean-squared deviations between the theoretical and empirical return distributions. We find that the Heston model is able to characterize the empirical distribution of Chinese stock returns at the daily, weekly and monthly timescales.

Suggested Citation

  • Ahmet Goncu & Hao Yang, 2014. "Fitting the Heston Stochastic Volatility Model to Chinese Stocks," International Finance and Banking, Macrothink Institute, vol. 1(1), pages 74-85, June.
  • Handle: RePEc:mth:ifb888:v:1:y:2014:i:1:p:74-85

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    References listed on IDEAS

    1. Adrian Dragulescu & Victor Yakovenko, 2002. "Probability distribution of returns in the Heston model with stochastic volatility," Quantitative Finance, Taylor & Francis Journals, vol. 2(6), pages 443-453.
    2. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    3. Gilles Daniel & Nathan Joseph & David Bree, 2005. "Stochastic volatility and the goodness-of-fit of the Heston model," Quantitative Finance, Taylor & Francis Journals, vol. 5(2), pages 199-211.
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