The Nonconvexities Problem in Adaptive Control Models
In the last few years new attention has been paid to the problem of nonconvexities in the objective functional, or cost-to-go, of adaptive control models. The problem was first discovered in the late seventies (Kendrick, 1978; Norman et al., 1979) but only recently Mizrach (1991), Amman and Kendrick (1995) and Tucci (1998) have returned to it showing that nonconvexities are fundamental in this type of models.1 They can occur even when there is only one state variable, one control variable, one unknown parameter and a time horizon of two periods as in the simple MacRae (1972) problem seen in Chapter 3 and 5.
KeywordsCovariance Eter Volatility
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