The finite state Markov-Chain approximation method developed by Tauchen (1986) and Tauchen and Hussey (1991) is widely used in economics, finance and econometrics in solving for functional equations where state variables follow an autoregressive process. For highly persistent processes, the...

Dynamic programming is the essential tool in dynamic economic analysis. Problems such as portfolio allocation for individuals and optimal economic growth are typical examples. Numerical methods typically approximate the value function. Recent work has focused on making numerical methods more...