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<p>This paper examines the performance of Heston and double Heston stochastic volatility model in China’s newly launched index options market. We study the pricing performance, the statistical significance of the pricing performance of two stochastic volatility models and the Black–Scholes model, and the structure of pricing errors. It is found that Heston and double Heston models result in lower pricing error; at longer maturity, these two models provide a relatively more accurate pricing performance. It is also found that two stochastic volatility models tend to exhibit noticeable stability during the COVID-19 period and the double Heston model offers the highest utility gain among the competing models.</p>

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Testing of Heston’s Stochastic Volatility Models in China’s Emerging Index Options Market

  • 期刊论文

  • 发表日期：

    2026年2月13日

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  • Pengshi Li,
  • Yan Lin,
  • Guifang Liu,
  • Xing Yu

摘要

This paper examines the performance of Heston and double Heston stochastic volatility model in China’s newly launched index options market. We study the pricing performance, the statistical significance of the pricing performance of two stochastic volatility models and the Black–Scholes model, and the structure of pricing errors. It is found that Heston and double Heston models result in lower pricing error; at longer maturity, these two models provide a relatively more accurate pricing performance. It is also found that two stochastic volatility models tend to exhibit noticeable stability during the COVID-19 period and the double Heston model offers the highest utility gain among the competing models.