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Using Age Structure for a Multi-stage Optimal Control Model with Random Switching Time

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  • Stefan Wrzaczek

    (Vienna Institute of Demography)

  • Michael Kuhn

    (Vienna Institute of Demography)

  • Ivan Frankovic

    (Vienna Institute of Demography)

Abstract

The paper presents a transformation of a multi-stage optimal control model with random switching time to an age-structured optimal control model. Following the mathematical transformation, the advantages of the present approach, as compared to a standard backward approach, are discussed. They relate in particular to a compact and unified representation of the two stages of the model: the applicability of well-known numerical solution methods and the illustration of state and control dynamics. The paper closes with a simple example on a macroeconomic shock, illustrating the workings and advantages of the approach.

Suggested Citation

  • Stefan Wrzaczek & Michael Kuhn & Ivan Frankovic, 2020. "Using Age Structure for a Multi-stage Optimal Control Model with Random Switching Time," Journal of Optimization Theory and Applications, Springer, vol. 184(3), pages 1065-1082, March.
    • Handle: RePEc:spr:joptap:v:184:y:2020:i:3:d:10.1007_s10957-019-01598-5
    DOI: 10.1007/s10957-019-01598-5
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