Probability Distribution of Returns in Heston Model And Hurst Exponent Estimation for Index Prices of FTSE Bursa Malaysia KLCI

Authors

  • Kho Chia Chen
  • Tey Seah Ying
  • Arifah Bahar

DOI:

https://doi.org/10.11113/matematika.v30.n0.738

Abstract

In this study, the probability distribution of returns for the index prices of FTSE Bursa Malaysia KLCI based on the Heston Model with stochastic variance is constructed to analyse its capability in describing the returns. The values of parameters in Heston Model of the index prices of FTSE Bursa Malaysia KLCI have been estimated using Simulated Maximum Likelihood method. Euler-Maruyama method has been used to approximate the solutions of the stochastic differential equation. It is found that for complete set of the data, the probability distribution of log returns for closing prices of FTSE Bursa Malaysia KLCI fitted the theoretical curve better at time lag, t=1 and 20. In addition, we used Hurst exponent to measure the existing of long range dependence of time series towards the real data.

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Published

2014-12-01