A Malliavin-based Monte-Carlo Approach for Numerical Solution of Stochastic Control Problems: Experiences from Mertonï¿s Problem. Working Paper

Using a simplified version of Merton’s problem as a benchmark, a numerical procedure for solving stochastic control problems is developed. The algorithm involves the estimation of conditional expectations, which are conditioned on the controlled state process. Although Merton’s problem can be reduced to not depend on the controlled state process the suggested method does not use this fact.