Week 10 Homework Feedback: Sebastiano Bacchi

Overall Assessment

Grade: ✅ (Pass)

Correct submission. You implemented the EGM method correctly using a hybrid approach (using fzero) and successfully completed both tasks.

Task-by-Task Check

Task 1: Quantifying Precautionary Savings

  1. Parameter & Grid Setup: ✅ Correct.
  2. Solution Method: ✅ EGM implemented correctly.
  3. Deterministic Case: ✅ Solved.
  4. Stochastic Case: ✅ Solved.
  5. Simulation: ✅ Simulation logic is correct.
  6. Comparison: ✅ Premium calculated.

Task 2: The Role of Risk Aversion

  1. Sigma Variation: ✅ Implemented.
  2. Solving Sigma Cases: ✅ Solved.
  3. Policy Plot: ✅ Plotted.
  4. Simulation Comparison: ✅ Calculated.
  5. Interpretation: ✅ Correct.

Technical Implementation

  • EGM Logic: Correct. You compute the expected RHS and invert the Euler equation.
  • Hybrid Approach: Using fzero inside the loop (line 120) to find k_endo is valid and robust, though it makes the code slower than pure interpolation.
  • Simulation: You correctly discard burn-in periods.

Visual Output

  • Figures are generated and saved.

Suggestions for Improvement

  1. Efficiency: The fzero loop is the main bottleneck. You could replace it by calculating TotalAssets for the whole grid and then interpolating Resource(k) to map back to K_grid.

Summary

11/11 tasks correct. Correct work.