Efficient Simulation for Pricing Barrier Options with Two-Factor Stochastic Volatility and Stochastic Interest Rate

Algorithm 1

The basic algorithm for pricing a DOC option.

Initial , , , , , , , , , , , , ;

Compute using (4);

;

    repeatfor to

Compute for ;

Draw two uniform random numbers ;

Draw two standard normal random numbers by ;

ifthen compute by ;

else compute by (14);

end if

Compute , , , , ;

Compute by (21);

Set ;

if, then  payoff = 0;

else  payoff = ;

end if

;

until the last simulation

Compute by .