Collocation method with transition matrix

Recall the model with transition matrix:

where

and c changes depending on the state. That is,

from j=1 to m

for non-aggregate model. And

from j=1 to m

for aggregate model.

We find k’ or K’ versus k or K up to the convergence of value function by collocation

Method and then we apply interpolation to the values on the grid of policy function.

We do the same things as in 1108, 1109, and 1110 by collocation method only.