The State Equations Methods for Stochastic Control Problems |
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| Authors: | Lijin Wang Fengshan Bai |
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| Institution: | 1. Department of Mathematical Sciences, Tsinghua University, Beijing 100084, China School of Mathematical Sciences, Graduate University of Chinese Academy of Sciences, Beijing 100049, China.
2. Department of Mathematical Sciences, Tsinghua University, Beijing 100084, China |
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| Abstract: | The state equations of stochastic control problems,which are controlled stochastic differential equations,are proposed to be discretized by the weak midpoint rule and predictor-corrector methods for the Markov chain approximation approach. Local consistency of the methods are proved.Numerical tests on a simplified Merton's portfolio model show better simulation to feedback control rules by these two methods, as compared with the weak Euler-Maruyama discretisation used by Krawczyk.This suggests a new approac... |
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| Keywords: | Stochastic optimal control Markov chain approximation Euler-Maruyama discretisation midpoint rule predictor-corrector methods portfolio management |
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