A generalized endogenous grid method for discrete-continuous choice

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John Rust; Bertel Schjerning; Fedor Iskhakov;
(2012)

This paper extends Carroll's endogenous grid method (2006 "The method of endogenous gridpoints for solving dynamic stochastic optimization problems", Economic Letters) for models with sequential discrete and continuous choice. Unlike existing generalizations, we propose... View more
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    1. Allow a0 = M . Calculate m(a0). If m(a0) M , set ba = a0, mb = m(a0) and proceed to next step, otherwise let a0 21 (a0 + A0) and repeat this step.

    2. Set i = 0 ai = A0 and calculate m(ai).

    3. Find ai such that the straight line through (ai; m(ai)) and (ba; mb) takes value M at ai.

    4. Divide the interval (ai; ai) into n

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