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A polyhederal approximation approach to concave numerical dynamic programming

  • Yuichiro Waki

    (University of Minnesota)

  • Kenichi Fukushima

    (University of Wisconsin - Madison)

This paper describes a method for solving concave numerical dynamic programming problems which is based a pair of polyhederal approximations of concave functions. The method is robust in that (i) it is globally convergent, (ii) it produces exact error bounds on the computed value function which can in theory be made arbitrarily tight, and (iii) its implementation boils down to solving a sequence of linear programs. This is true regardless of the dimensionality of the state space, the pattern of binding constraints, and the smoothness of model primitives. Numerical examples suggest that the method is capable of producing accurate solutions in an ecient manner.

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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 689.

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Date of creation: 2011
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Handle: RePEc:red:sed011:689
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Web page: http://www.EconomicDynamics.org/society.htm
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  1. Julia K. Thomas & Aubhik Khan, 2010. "Credit Shocks and Aggregate Fluctuations in an Economy with Production Heterogeneity," 2010 Meeting Papers 801, Society for Economic Dynamics.
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  7. Abel, Andrew B & Eberly, Janice C, 1996. "Optimal Investment with Costly Reversibility," Review of Economic Studies, Wiley Blackwell, vol. 63(4), pages 581-93, October.
  8. Manuel S. Santos & Jesus Vigo-Aguiar, 1998. "Analysis of a Numerical Dynamic Programming Algorithm Applied to Economic Models," Econometrica, Econometric Society, vol. 66(2), pages 409-426, March.
  9. Kazuo Nishimura & John Stachurski, 2007. "Equilibrium Storage With Multiple Commodities," CAMA Working Papers 2007-11, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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  11. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, June.
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