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

  • Michael Reiter

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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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
Contact details of provider: Web page: http://www.econ.upf.edu/

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  1. John Rust, 1997. "Using Randomization to Break the Curse of Dimensionality," Econometrica, Econometric Society, vol. 65(3), pages 487-516, May.
  2. Judd, Kenneth L., 1992. "Projection methods for solving aggregate growth models," Journal of Economic Theory, Elsevier, vol. 58(2), pages 410-452, December.
  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. 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.
  5. Keane, Michael P & Wolpin, Kenneth I, 1994. "The Solution and Estimation of Discrete Choice Dynamic Programming Models by Simulation and Interpolation: Monte Carlo Evidence," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 648-72, November.
  6. 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.
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