The research of C. Buescu and A. Cadenillas was supported by the Social Sciences and Humanities Research Council of Canada grants 410-2003-1401 and 410-2006-1069. The contributions of C. Buescu were made during his doctoral studies at the Department of Mathematical and Statistical Sciences of the University of Alberta.
A NOTE ON THE EFFECTS OF TAXES ON OPTIMAL INVESTMENT
Version of Record online: 14 SEP 2007
Volume 17, Issue 4, pages 477–485, October 2007
How to Cite
Buescu, C., Cadenillas, A. and Pliska, S. R. (2007), A NOTE ON THE EFFECTS OF TAXES ON OPTIMAL INVESTMENT. Mathematical Finance, 17: 477–485. doi: 10.1111/j.1467-9965.2007.00312.x
- Issue online: 14 SEP 2007
- Version of Record online: 14 SEP 2007
- Manuscript received April 2004; final revision received July 2006.
- portfolio management;
- optimal stopping time;
- transaction costs
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.