Numerical approximation of a system of Hamilton-Jacobi-Bellman equations arising in innovation dynamics (Q2161812)

In this paper, different discretization methods are compared for the approximation of Hamilton-Jacobi-Bellman equations with the value functions of an optimal innovation investment problem of a monopoly firm facing bankruptcy risk. The authors consider a stabilized finite element method (FEM), two adaptive finite element discretization strategies; the first approach employs a stabilized finite element approximation and the second one is based on an adaptive least-squares finite element method (LSFEM). The proposed FEMs are compared with alternative discretization approaches: the Chebyshev collocation method and the finite difference method. The implementation of the considered numerical scheme is discussed in detail such as the convergence of the policy iteration steady-state and time-dependent problems. The performance of the methods is discussed on several numerical examples with different model parameters.