Users of regular higher-order perturbation approximations can face two problems: policy functions with odd oscillations and simulated data that explode. We propose a perturbation-based approximation that (i) does not have odd shapes, (ii) generates stable time paths, and (iii) avoids the...

This paper presents an algorithm for solving nonlinear dynamic stochastic models that computes value function by simulations. We argue that the proposed algorithm can be a useful alternative to the existing methods in some applications.

In this dissertation we price European and American vanilla and barrier options assuming that the underlying follows the variance gamma process. We solve numerically the problem implementing a finite difference algorithm and we present numerical experiments on the option pricing. This...

We investigate the economic importance of modeling non-linearities in the dynamics of exogenous processes on the implied moments of endogenous variables in the context of the consumption-based asset pricing model. For this purpose, we model the endowment process alternatively as a linear...

We compare the performance of perturbation, projection, and stochastic simulation algorithms for solving the multi-country RBC model described in Den Haan et al. (this issue). The main challenge of solving this model comes from its large number of continuous-valued state variables, ranging...

This paper describes the second model considered in the computational suite project that compares the performance of different numerical algorithms. It is a multi-country model in which countries face different productivity shocks. Solving such models is a challenging numerical problem unless...

Theoretical formulations of dynamic heterogeneous-agent economiestypically include a distribution as an aggregate state variable. This paperintroduces a method for computing equilibrium of these models by including a distribution directly as a state variable if it is finite-dimensional or a fine...

This note describes how the incomplete markets model with aggregate uncertainty in Den Haan et al. [Comparison of solutions to the incomplete markets model with aggregate uncertainty. Journal of Economic Dynamics and Control, this issue] is solved using standard quadrature and projection...