This chapter introduces the stochastic dynamic programming approach for diffusion processes, one of the three main methods for solving dynamic optimization problems in continuous-time asset pricing theory. This technique reformulates the optimal stochastic control problem into a partial differential equation known as the Hamilton-Jacobi-Bellman (HJB) equation. The chapter provides a step-by-step explanation of how this approach is applied.

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Dynamic Programming Approach in Continuous Time

  • Hamilton Galindo Gil

摘要

This chapter introduces the stochastic dynamic programming approach for diffusion processes, one of the three main methods for solving dynamic optimization problems in continuous-time asset pricing theory. This technique reformulates the optimal stochastic control problem into a partial differential equation known as the Hamilton-Jacobi-Bellman (HJB) equation. The chapter provides a step-by-step explanation of how this approach is applied.