Heston model: the variance swap calibration (Q2247916)

This paper proposes an alternative methodology to derive starting values for parameters of the Heston model. The term structure of variance swap prices is inferred from the option price surface by means of the spanning option payoff formula given by \textit{D. T. Breeden} and \textit{R. H. Litzenberger} [``Prices of state-contingent claims implicit in option prices'', J. Bus. 51, No. 4, 621--651 (1978), \url{http://www.jstor.org/stable/2352653}]. The authors compare the Heston cumulated variance term structure with the one inferred from the market. This comparison shows that the Heston model is able to fit the expected variance term structure.