Title

Necessity of Transversality Conditions for Stochastic Problems

Abstract

This paper shows stochastic versions of (i) Michel's (1990, Econometrica 58, 705--723, Theorem 1) necessity result , (ii) a generalization of the TVC results of Weitzman (1973, Manage. Sci.19, 783--789) and Ekeland and Scheinkman (1986, Math. Oper. Res. 11, 216--229), and (iii) Kamihigashi's (2001, Econometrica 69, 995--1012, Theorem 3.4) result, which is useful particularly in the case of homogeneous returns.  These stochastic extensions are established for an extremely general stochastic reduced-form model that assumes neither differentiability nor continuity.

Keywords: Transversality condition
　　　　　　 stochastic optimization
　　　　　　 stochastic reduced-form model
　　　　　　 homogeneous returns
　　　　　　 stochastic growth model

JEL Classification: C61, D90, G12

Takashi KAMIHIGASHI
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: (81) 78 803 7036
Fax: (81) 78 803 7059