Solving Numerically the HJB Equation: Foundations

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

Chapter Chapter 8 in Heterogeneous Agents in Asset Pricing, Vol 1, 2025, pp 241-284 from Springer

Abstract: Abstract This chapter outlines the components of a numerical solution method and demonstrates its application by solving the Huggett model from Achdou et al. (Review of Economics Studies, 89(1), 45–86 (2022)). We employ the finite-difference method to approximate the derivatives of the value function, using the upwind scheme to select between forward and backward approximations. Additionally, we implement both explicit and implicit methods to update the value function.

Date: 2025
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DOI: 10.1007/978-3-031-93263-2_8

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