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A NOTE ON THE EFFECTS OF TAXES ON OPTIMAL INVESTMENT
Author(s) -
Buescu Cristin,
Cadenillas Abel,
Pliska Stanley R.
Publication year - 2007
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2007.00312.x
Subject(s) - taxable income , bond , transaction cost , portfolio , economics , database transaction , asset (computer security) , investment (military) , financial economics , monetary economics , microeconomics , finance , computer security , accounting , politics , computer science , law , political science , programming language
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.