A Numerical Method for Solving Stochastic Optimal Control Problems with Linear Control

26 Pages Posted: 19 Jul 2010

See all articles by Walailuck Chavanasporn

Walailuck Chavanasporn

affiliation not provided to SSRN

Christian-Oliver Ewald

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

Date Written: July 18, 2010

Abstract

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

Chavanasporn, Walailuck and Ewald, Christian-Oliver, A Numerical Method for Solving Stochastic Optimal Control Problems with Linear Control (July 18, 2010). Available at SSRN: https://ssrn.com/abstract=1645006 or http://dx.doi.org/10.2139/ssrn.1645006

Walailuck Chavanasporn

affiliation not provided to SSRN ( email )

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/

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