This note provides a simple proof of the necessity of the transversality condition for the differentiable reduced-form model. The proof uses only an elementary perturbation argument without relying on dynamic programming. The proof makes it clear that, contrary to common belief, the necessity of the transversality condition can be shown in a straightforward way.
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number
116.
Find related papers by JEL classification: C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis D90 - Microeconomics - - Intertemporal Choice and Growth - - - General G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
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