Dynamic programming is the essential tool in dynamic economic analysis. Problems such as portfolio allocation for individuals and optimal growth of national economies are typical examples. Numerical methods typically approximate the value function and use value function iteration to compute the...

Dynamic programming is the essential tool in dynamic economic analysis. Problems such as portfolio allocation for individuals and optimal growth of national economies are typical examples. Numerical methods typically approximate the value function and use value function iteration to compute the...

We introduce an envelope condition method (ECM) for solving dynamic programming problems. The ECM method is simple to implement, dominates conventional value function iteration and is comparable in accuracy and cost to Carroll’s (2005) endogenous grid method. Codes are available.

Numerical methods for dynamic programming often use value function iteration and interpolation. We present a novel shape-preserving rational spline approximation method that improves value function iteration in terms of both stability and accuracy compared to more common methods.

Recently, Campbell and Viceira (2002) have introduced a framework that allows for dynamic decisions in asset allocation. This paper follows up their work by showing how uncertainties and expectations may affect consumption and portfolio decisions in an intertemporal dynamic framework. We use the...