This paper proposes a moment-matching method for approximating vector autoregressions by finite-state Markov chains. The Markov chain is constructed by targeting the conditional moments of the underlying continuous process. The proposed method is more robust to the number of discrete values and...

Recursive utility models of the type introduced by Kreps and Porteus (1978) are used extensively in applied research in macroeconomics and asset pricing in environments with uncertainty. These models represent preferences as the solution to a nonlinear forward-looking difference equation with a...