Optimal Time Aggregation of infinite horizon optimal control problems
Please cite this item using this persistent URLhttp://hdl.handle.net/11693/11481
Journal of Economic Dynamics and Control
- Department of Economics 
This paper proposes a novel method that enhances numerical approximation of infinite horizon optimal control problems. For direct numerical optimization, a continuous-time infinite horizon model needs to be first recast as a discrete-time, finite-horizon control problem. The very transformation itself may significantly degrade the quality of the optimization results, if due care is not taken to preserve the salient features in the original model. Mercenier and Michel (1994. Econometrica. 62, 635-656, 2001. Journal of Economic Dynamics and Control 25, 1179-1191), for instance, propose time aggregation methods that minimize approximation errors at the steady-state. Using their scheme, we show that overall optimization performance can be further improved if the discretization of the transient phase is optimal as well. Three sample problems are numerically solved to demonstrate the potential benefits. (c) 2005 Elsevier B.V. All rights reserved.
Alemdar, N., Sirakaya, S., & Husseinov, F. Optimal Time Aggregation of infinite horizon optimal control problems. J of Economic Dynamics and Control, 30, 569-593.