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Necessity of Transversality Conditions for Stochastic Problems

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Author Info
Takashi Kamihigashi (Research Institute for Economics and Business Administration, Kobe University)
Abstract

This paper shows stochastic versions of (i) Michel's (1990, Econometrica 58, 705--723, Theorem 1) necessity result , (ii) a generalization of the TVC results of Weitzman (1973, Manage. Sci. 19, 783--789) and Ekeland and Scheinkman (1986, Math. Oper. Res. 11, 216--229), and (iii) Kamihigashi's (2001, Econometrica 69, 995--1012, Theorem 3.4) result, which is useful particularly in the case of homogeneous returns. These stochastic extensions are established for an extremely general stochastic reduced-form model that assumes neither differentiability nor continuity.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp128.pdf
File Format: application/pdf
File Function: First version, 2002
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Publisher Info
Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 128.

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Length: 12 pages
Date of creation: Apr 2002
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Handle: RePEc:kob:dpaper:128

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Related research
Keywords: Transversality condition; stochastic optimization; stochastic reduced-form model; homogeneous returns; stochastic growth model;

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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  1. Zilcha, Itzhak, 1976. "Characterization by prices of optimal programs under uncertainty," Journal of Mathematical Economics, Elsevier, vol. 3(2), pages 173-183, July. [Downloadable!] (restricted)
  2. Michel, Philippe, 1990. "Some Clarifications on the Transversality Condition," Econometrica, Econometric Society, vol. 58(3), pages 705-23, May. [Downloadable!] (restricted)
  3. Brock, William A, 1970. "On Existence of Weakly Maximal Programmes in a Multi-Sector Economy," Review of Economic Studies, Blackwell Publishing, vol. 37(2), pages 275-80, April. [Downloadable!] (restricted)
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