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A Note On The Effects Of Taxes On Optimal Investment

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  • Cristin Buescu
  • Abel Cadenillas
  • Stanley R. Pliska

Abstract

We integrate two approaches to portfolio management problems: that of Morton and Pliska (1995) for a portfolio with risky and riskless assets under transaction costs, and that of Cadenillas and Pliska (1999) for a portfolio with a risky asset under taxes and transaction costs. In particular, we show that the two surprising results of the latter paper, results shown for a taxable market consisting of only a single security, extend to a financial market with one risky asset and one bond: it can be optimal to realize not only losses but also gains, and sometimes the investor prefers a positive tax rate.

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  • Cristin Buescu & Abel Cadenillas & Stanley R. Pliska, 2007. "A Note On The Effects Of Taxes On Optimal Investment," Mathematical Finance, Wiley Blackwell, vol. 17(4), pages 477-485, October.
    • Handle: RePEc:bla:mathfi:v:17:y:2007:i:4:p:477-485
    DOI: 10.1111/j.1467-9965.2007.00312.x
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    Cited by:

    1. Christoph Kuhn & Budhi Arta Surya & Bjorn Ulbricht, 2014. "Optimal Selling Time of a Stock under Capital Gains Taxes," Papers 1501.00026, arXiv.org.

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