A Numerical Method for Solving Stochastic Optimal Control Problems with Linear Control
26 Pages Posted: 19 Jul 2010
Date Written: July 18, 2010
We introduce a numerical method to solve stochastic optimal control problems, which are linear in the control. We facilitate the idea of solving two-point boundary value problems with spline functions in order to solve the resulting dynamic programming equation. We then show how to effectively reduce the dimension in the proposed algorithm, which improves computational time and memory constraints. Numerical examples which demonstrate the effectiveness of our method are provided.
Keywords: numerical stochastic optimal control, dynamic programming, computational economics, investment decisions
JEL Classification: C63
Suggested Citation: Suggested Citation