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JEL classification: C6 C61 C63 C68 Keywords: Dynamic programming Bellman equation Endogenous grid Curse of dimensionality Large scale Default risk a b s t r a c t We develop an envelope condition method (ECM) for dynamic programming problemsa tractable alternative to expensive conventional value function iteration (VFI). ECM has two novel features: first, to reduce the cost of iteration on Bellman equation, ECM constructs policy functions using envelope conditions which are simpler to analyzedoi:10.2139/ssrn.2470009 fatcat:qpw7esg2gjgwthjccjz5nilydu