A general framework for multistage mean-variance post-tax optimization

Maria Osorio (), Nalan Gülpınar () and Berç Rustem ()

Annals of Operations Research, 2008, vol. 157, issue 1, 3-23

Abstract: An investor’s decisions affect the way taxes are paid in a general portfolio investment, modifying the net redemption value and the yearly optimal portfolio distribution. We investigate the role of these decisions on multistage mean-variance portfolio allocation model. A number of risky assets grouped in wrappers with special taxation rules is integrated in a multistage financial portfolio optimization problem. The uncertainty on the returns of assets is specified as a scenario tree generated by simulation/clustering based approach. We show the impact of decisions in the yearly reallocation of the investments for three typical cases with an annual fixed withdrawal in a fixed horizon that utilizes completely the option of taper relief offered by banks in UK. Our computational framework can be used as a tool for testing decisions in this context. Copyright Springer Science+Business Media, LLC 2008

Keywords: Post-tax optimization; Mean-variance portfolio management; Multistage stochastic mixed-integer quadratic programming; Scenario tree (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1007/s10479-007-0255-4

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