Dynamic Programming Approach in Continuous Time

Hamilton Galindo Gil ()
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Hamilton Galindo Gil: Cleveland State University, Department of Finance and Economics

Chapter Chapter 2 in Heterogeneous Agents in Asset Pricing, Vol 1, 2025, pp 53-103 from Springer

Abstract: Abstract 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.

Date: 2025
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DOI: 10.1007/978-3-031-93263-2_2

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