Comparing numerical methods for solving the competitive storage model

This paper compares numerical methods for solving the competitive storage model. Since storage implies an inequality constraint, the solution methods must be considered carefully. The model is solved using value function iteration, and several projection approaches, including parameterised expectations and decision rules approximation. Using a penalty function approach to smooth the inequality constraint, perturbation methods are also applied. Parameterised expectations proves the most accurate method, while perturbation techniques are shown inadequate for solving this highly nonlinear model. The endogenous grid method allows rapid solution if supply is assumed to be inelastic.


Issue Date:
2010
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/115430
Total Pages:
27
JEL Codes:
C63; D84; E37
Series Statement:
Working Paper
2010-03




 Record created 2017-04-01, last modified 2017-08-26

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