Analytic Solutions for Infinite Horizon Stochastic Optimal Control Problems via Finite Horizon Approximation: A Practical Guide

13 Pages Posted: 7 Apr 2009 Last revised: 8 Nov 2009

See all articles by Christian-Oliver Ewald

Christian-Oliver Ewald

University of Glasgow; Center for Dynamic Macroeconomic Analysis, University of St. Andrews - School of Economics and Finance

Wen-Kai Wang

National University of Kaohsiung - Department of Finance

Date Written: April 7, 2009

Abstract

We show how infinite horizon stochastic optimal control problems can be solved via studying their finite horizon approximations. This often leads to analytical solutions for the infinite horizon problem, even when the complexity of the finite horizon approximation is to large, as in order to allow analytical solutions in the finite horizon case.

Keywords: Stochastic optimal control, Hamilton-Jacobi-Bellman equation

JEL Classification: C63, G11, G31, G39

Suggested Citation

Ewald, Christian-Oliver and Wang, Wen-Kai, Analytic Solutions for Infinite Horizon Stochastic Optimal Control Problems via Finite Horizon Approximation: A Practical Guide (April 7, 2009). Available at SSRN: https://ssrn.com/abstract=1374216 or http://dx.doi.org/10.2139/ssrn.1374216

Christian-Oliver Ewald (Contact Author)

University of Glasgow ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

Center for Dynamic Macroeconomic Analysis, University of St. Andrews - School of Economics and Finance ( email )

Castlecliffe
The Scores
St. Andrews, Fife KY16 9AL
United Kingdom
+44(0)1334 462435 (Phone)

HOME PAGE: http://www.maths.usyd.edu.au/u/ewald/

Wen-Kai Wang

National University of Kaohsiung - Department of Finance ( email )

700 Kaohsiung University Rd.
Nanzih District
Kaohsiung 803
Taiwan

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