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.

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