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Solving higher-dimensional continuous time stochastic control problems by value function regression

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  • Michael Reiter

Abstract

The paper develops a method to solve higher-dimensional stochastic control problems in continuous time. A finite difference type approximation scheme is used on a coarse grid of low discrepancy points, while the value function at intermediate points is obtained by regression. The stability properties of the method are discussed, and applications are given to test problems of up to 10 dimensions. Accurate solutions to these problems can be obtained on a personal computer.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/299.pdf
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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 299.

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Date of creation: Mar 1997
Date of revision: Jun 1998
Handle: RePEc:upf:upfgen:299

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Dynamic Programming; stochastic control; approximation;

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References

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  1. Rust, John, 1996. "Numerical dynamic programming in economics," Handbook of Computational Economics, in: H. M. Amman & D. A. Kendrick & J. Rust (ed.), Handbook of Computational Economics, edition 1, volume 1, chapter 14, pages 619-729 Elsevier.
  2. Michael Reiter, . "Solving Higher-Dimensional Continuous Time Stochastic Control Problems by Value Function Interpolation," Computing in Economics and Finance 1997 135, Society for Computational Economics.
  3. John Rust, 1997. "A Comparison of Policy Iteration Methods for Solving Continuous-State, Infinite-Horizon Markovian Decision Problems Using Random, Quasi-random, and Deterministic Discretizations," Computational Economics 9704001, EconWPA.
  4. repec:att:wimass:9429 is not listed on IDEAS
  5. Michael P. Keane & Kenneth I. Wolpin, 1994. "The solution and estimation of discrete choice dynamic programming models by simulation and interpolation: Monte Carlo evidence," Staff Report 181, Federal Reserve Bank of Minneapolis.
  6. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  7. John Rust & Department of Economics & University of Wisconsin, 1994. "Using Randomization to Break the Curse of Dimensionality," Computational Economics 9403001, EconWPA, revised 04 Jul 1994.
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Cited by:
  1. Andrew J. Leach, 2004. "The Climate Change Learning Curve," Cahiers de recherche 04-03, HEC Montréal, Institut d'économie appliquée.
  2. Lars Grüne & Willi Semmler, 2007. "Asset pricing with dynamic programming," Computational Economics, Society for Computational Economics, vol. 29(3), pages 233-265, May.
  3. Grune, Lars & Semmler, Willi, 2004. "Using dynamic programming with adaptive grid scheme for optimal control problems in economics," Journal of Economic Dynamics and Control, Elsevier, vol. 28(12), pages 2427-2456, December.
  4. Willi Semmler & Lars Grüne, 2004. "Asset Pricing with Delayed Consumption Decisions," Computing in Economics and Finance 2004 59, Society for Computational Economics.
  5. Alemdar, Nedim M. & Sirakaya, Sibel & Husseinov, Farhad, 2006. "Optimal time aggregation of infinite horizon control problems," Journal of Economic Dynamics and Control, Elsevier, vol. 30(4), pages 569-593, April.

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