You can implement the constraints on psi as a linear inequality constraint. If you check the documentation for your solver (e.g., doc fmincon), you should see the definitions of the A, Aeq, B, Beq matrices, which you can use to implement the constraint. For example, if your constraint is that
You can convert this constraint to an inequality:
implement this as:
Similarly, for psi > b:
Note that you will need to pad out A and B with zeros if you have additional parameters to optimize.