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Optimal investment with taxes: an existence result

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  • Jouini, Elyes
  • Koehl, Pierre-F.
  • Touzi, Nizar

Abstract

We study the deterministic control problem of maximizing utility from consumption of an agent who seeks to optimally allocate his wealth between consumption and investment in a financial asset subject to taxes on benefits with first-in–first-out priority rule on sales. Short sales are prohibited and consumption is restricted to be non-negative. Such a problem has been introduced in a previous paper by the same authors where the first-order conditions have been derived. In this paper, we establish an existence result for this non-classical optimal control problem.
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Suggested Citation

  • Jouini, Elyes & Koehl, Pierre-F. & Touzi, Nizar, 2000. "Optimal investment with taxes: an existence result," Journal of Mathematical Economics, Elsevier, vol. 33(4), pages 373-388, May.
    • Handle: RePEc:eee:mateco:v:33:y:2000:i:4:p:373-388
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    References listed on IDEAS

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    1. Elyès Jouini & Pf. Koehl & Nizar Touzi, 1997. "Optimal Investment with Taxes : An Optimal Control Problem with Endogenous Delay," Working Papers 97-44, Center for Research in Economics and Statistics.
    2. repec:dau:papers:123456789/5607 is not listed on IDEAS
    3. Constantinides, George M, 1983. "Capital Market Equilibrium with Personal Tax," Econometrica, Econometric Society, vol. 51(3), pages 611-636, May.
    4. Jaime Cuevas Dermody & R. Tyrrell Rockafellar, 1995. "Tax Basis And Nonlinearity In Cash Stream Valuation," Mathematical Finance, Wiley Blackwell, vol. 5(2), pages 97-119, April.
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    Cited by:

    1. Christoph Kuhn & Bjorn Ulbricht, 2013. "Modeling capital gains taxes for trading strategies of infinite variation," Papers 1309.7368, arXiv.org, revised Jun 2015.
    2. Gallmeyer, Michael F. & Kaniel, Ron & Tompaidis, Stathis, 2006. "Tax management strategies with multiple risky assets," Journal of Financial Economics, Elsevier, vol. 80(2), pages 243-291, May.
    3. Christoph Kuhn, 2018. "How local in time is the no-arbitrage property under capital gains taxes ?," Papers 1802.06386, arXiv.org, revised Sep 2018.
    4. Christoph Kuhn & Budhi Arta Surya & Bjorn Ulbricht, 2014. "Optimal Selling Time of a Stock under Capital Gains Taxes," Papers 1501.00026, arXiv.org.
    5. Stathis Tompaidis & Sanjay Srivastava & Michael Gallmeyer & Paul Ehling, 2008. "Portfolio Choice with Capital Gain Taxation and the Limited Use of Losses," 2008 Meeting Papers 769, Society for Economic Dynamics.

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • C69 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Other

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