TY - JOUR
AU - Cai,Yongyang
AU - Judd,Kenneth L.
TI - Dynamic Programming with Hermite Approximation
JF - National Bureau of Economic Research Working Paper Series
VL - No. 18540
PY - 2012
Y2 - November 2012
DO - 10.3386/w18540
UR - http://www.nber.org/papers/w18540
L1 - http://www.nber.org/papers/w18540.pdf
N1 - Author contact info:
Yongyang Cai
Becker Friedman Institute
University of Chicago
and
Hoover Institution
Stanford University
Stanford, CA 94305
E-Mail: yycai@stanford.edu
Kenneth L. Judd
Hoover Institution
Stanford University
Stanford, CA 94305-6010
Tel: 650/723-5866
Fax: 650/723-1687
E-Mail: JUDD@HOOVER.STANFORD.EDU
AB - Numerical dynamic programming algorithms typically use Lagrange data to approximate value functions over continuous states. Hermite data is easily obtained from solving the Bellman equation and can be used to approximate value functions. We illustrate this method with one-, three-, and six-dimensional examples. We find that value function iteration with Hermite approximation improves accuracy by one to three digits using little extra computing time. Moreover, Hermite approximation is significantly faster than Lagrange for the same accuracy, and this advantage increases with dimension.
ER -