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Differentiability of the value function in continuous-time economic models

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  • Rincón-Zapatero, Juan Pablo
  • Santos, Manuel S.

Abstract

In this paper we provide some sufficient conditions for the differentiability of the value function in a class of infinite-horizon continuous—time models of convex optimization arising in economics. We dispense with an interioiity condition which is quite restrictive in constrained optimization and it is usually hard to check in applications. The differentiability of the value function is used to prove Bellman's equation as well as the existence and continuity of the optimal feedback policy. We also establish uniqueness of the vector of dual variables under some conditions that rule out existence of asset pricing bubbles.

Suggested Citation

  • Rincón-Zapatero, Juan Pablo & Santos, Manuel S., 2010. "Differentiability of the value function in continuous-time economic models," UC3M Working papers. Economics we1022, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:we1022
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    Cited by:

    1. Strulovici, Bruno & Szydlowski, Martin, 2015. "On the smoothness of value functions and the existence of optimal strategies in diffusion models," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 1016-1055.

    More about this item

    Keywords

    Constrained optimization;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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