Alternative methods of solving state-dependent pricing models
Abstract: We use simulation-based techniques to compare and contrast two methods for solving state-dependent pricing models: discretization, which solves and simulates the model on a grid; and collocation, which relies on Chebyshev polynomials. While both methods produce qualitatively similar results, statistically significant quantitative differences do arise. We present evidence favoring discretization over collocation in this context, given a lack of robustness in the latter.
File(s): File format is application/pdf https://www.kansascityfed.org/documents/5327/pdf-rwp08-10.pdf
Provider: Federal Reserve Bank of Kansas City
Part of Series: Research Working Paper
Publication Date: 2008
Number: RWP 08-10