transversality condition

Meaning

Noun

• A terminal condition on a costate variable in a, usually infinite, time optimization problem.

Origin

• To quote from Optimization in economics and finance
• : This terminal condition on λ(T) has often been called a transversality condition, for historical reasons deriving from time-optimal problems, where the (variable) time T to reach a target is minimized. In that situation, the transversality condition appears as a description of how the optimal path crosses a terminal line (graphing state against T).