Working Paper Series, Department of Finance, Copenhagen Business School
Upper Bounds on Numerical Approximation Errors
Abstract: This paper suggests a method for determining rigorous
upper bounds on approximation errors of numerical solutions to infinite
horizon dynamic programming models. Bounds are provided for approximations
of the value function and the policy function as well as the derivatives of
the value function. The bounds apply to more general problems than existing
bounding methods do. For instance, since strict concavity is not required,
linear models and piecewise linear approximations can be dealt with.
Despite the generality, the bounds perform well in comparison with existing
methods even when applied to approximations of a standard(strictly
Keywords: Numerical approximation errors; Bellman contractions; Error bounds; (follow links to similar papers)
JEL-Codes: G00; (follow links to similar papers)
26 pages, June 21, 2006
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