SOLVING NONLINEAR DYNAMIC STOCHASTIC MODELS - Core

SOLVING NONLINEAR DYNAMIC STOCHASTIC MODELS: AN ALGORITHM COMPUTING VALUE FUNCTION BY SIMULATIONS* Lilia Maliar and Serguei Maliar** WP-AD 2004-37

Corresponding author: Lilia Maliar: Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, Ap. Correos 99, 03080 Alicante, Spain. E-mail: [email protected]

Editor: Instituto Valenciano de Investigaciones Económicas, S.A. Primera Edición Octubre 2004. Depósito Legal: V-4395-2004

IVIE working papers offer in advance the results of economic research under way in order to encourage a discussion process before sending them to scientific journals for their final publication. * This research was partially supported by the Instituto Valenciano de Investigaciones Económicas and the Ministerio de Ciencia y Tecnología, BEC 2001-0535. ** L&S Maliar: Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, Ap. Correos 99, 03080 Alicante, Spain. E-mails: [email protected], [email protected]

SOLVING NONLINEAR DYNAMIC STOCHASTIC MODELS: AN ALGORITHM COMPUTING VALUE FUNCTION BY SIMULATIONS Lilia Maliar and Serguei Maliar

ABSTRACT

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. JEL Classification: C6; C63; C68 Key Words: Nonlinear stochastic models; Value function; Parameterized expectations; Monte Carlo simulations; Numerical solutions

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