Optimal investment with deferred capital gains taxes

Frank Seifried ()

Mathematical Methods of Operations Research, 2010, vol. 71, issue 1, 199 pages

Abstract: We solve the optimal portfolio problem of an investor in a complete market who is liable to deferred taxes due on capital gains, irrespective of their origin. In a Brownian framework we explicitly determine optimal strategies. Our analysis is based on a modification of the standard martingale method applied to the after-tax utility function, which exhibits a kink at the level of initial wealth, and Clark’s formula. Numerical results show that the Merton strategy is close to optimal under taxation. Copyright Springer-Verlag 2010

Keywords: Optimal investment; Capital gains taxes; Deferred taxes; Martingale method; Clark’s formula (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1007/s00186-009-0291-8

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