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Two Characterizations of Optimality in Dynamic Programming |
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| Authors: | Ioannis Karatzas William D. Sudderth |
| Affiliation: | 1. Department of Mathematics, Columbia University, MailCode 4438, 2990 Broadway, New York, NY, 10027, USA 2. INTECH Investment Management LLC, One Palmer Square, Suite 441, Princeton, NJ, 08542, USA 3. School of Statistics, University of Minnesota, Minneapolis, MN, 55455, USA |
| Abstract: | It holds in great generality that a plan is optimal for a dynamic programming problem, if and only if it is “thrifty” and “equalizing.” An alternative characterization of an optimal plan, that applies in many economic models, is that the plan must satisfy an appropriate Euler equation and a transversality condition. Here we explore the connections between these two characterizations. |
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