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| Release | : 2014 |
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Across various sets of parameters, duality gaps between lower and upper bounds are smaller than 3% in most examples. We are able to solve the problem up to the size of 20 risky assets and a 30-year-long horizon.
| Author | : Hayne E. Leland |
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| Total Pages | : 47 |
| Release | : 1999 |
| Genre | : Portfolio management |
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| Author | : Lorenzo Garlappi |
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| Total Pages | : 54 |
| Release | : 2001 |
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We analyze the portfolio choice of an investor who can invest in tow risky assets (in addition to a riskless asset) and who is subject to taxes on realized capital gains. These taxes appear in the portfolio choice problem as a form of time-independent, endogenous transaction costs. Similar to the case of portfolio choice with transaction costs, the optimal strategy of the taxable investor contains a quot;no tradequot; region originating from the excercise of the option to defer capital gains taxes. This may lead an investor to hold a markedly undiversified portfolio, for reasonable parameter values. With multiple risky assets the investor is effectively holding a portfolio of tax-deferral options. The value of these options is considerable, in the range of 5-10% of the wealth of an investor with constant relative risk aversion. Such value is decreasing in the volatility and correlation of the assets and in the risk aversion. If the risky assets can be held only through a mutual fund, the investor incurs a cost due to the loss of flexibility whose magnitude is small when assets re positively correlated but can increase considerably as the correlation decreases.
| Author | : Victor DeMiguel |
| Publisher | : |
| Total Pages | : 47 |
| Release | : 2004 |
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Computing the optimal portfolio policy of an investor facing capital gains tax is a challenging problem: because the tax to be paid depends on the price at which the security was purchased (the tax basis), the optimal policy is path dependent and the size of the problem grows exponentially with the number of time periods. A popular approach to address this problem is to approximate the exact tax basis by the weighted average purchase price. Our contribution is threefold. First, we show that the structure of the problem has several attractive features that can be exploited to determine the optimal portfolio policy using the exact tax basis via nonlinear programming. Second, we characterize the optimal portfolio policy in the presence of capital-gains tax when using the exact tax basis. Third, we show that the certainty equivalent loss from using the average tax basis instead of the exact basis is very small: it is typically less than 1% for problems with up to ten periods, and this result is robust to the choice of parameter values and to the presence of transaction costs, dividends, intermediate consumption, labor income, tax reset provision at death, and wash-sale constraints.
| Author | : Robert M. Dammon |
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| Total Pages | : 42 |
| Release | : 2009 |
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We examine the impact of capital gains taxes upon the structure of an investor's optimal portfolio in the presence of multiple risky assets. Our numerical solutions suggest that the diversification benefits of reducing the exposure to a highly volatile concentrated position significantly outweigh the tax costs of selling, even for elderly investors. The presence of multiple risky assets in which the investor earns a substantial risk premium strongly increases the diversification incentive. We also contrast the impact of capital gains taxes and traditional transaction costs on rebalancing decisions and show that it can be optimal for the investor to reduce his overall equity exposure by selling underweighted assets with relatively small capital gains. Finally, we discuss the general qualitative features of the optimal investment policy in a broader context. Both our numerical and qualitative analyses show how the realization decision on one asset depends upon the embedded gains on other assets.
| Author | : Alan Scowcroft |
| Publisher | : Elsevier |
| Total Pages | : 384 |
| Release | : 2003-06-25 |
| Genre | : Business & Economics |
| ISBN | : 0080471846 |
Modern Portfolio Theory explores how risk averse investors construct portfolios in order to optimize market risk against expected returns. The theory quantifies the benefits of diversification.Modern Portfolio Theory provides a broad context for understanding the interactions of systematic risk and reward. It has profoundly shaped how institutional portfolios are managed, and has motivated the use of passive investment management techniques, and the mathematics of MPT is used extensively in financial risk management.Advances in Portfolio Construction and Implementation offers practical guidance in addition to the theory, and is therefore ideal for Risk Mangers, Actuaries, Investment Managers, and Consultants worldwide. Issues are covered from a global perspective and all the recent developments of financial risk management are presented. Although not designed as an academic text, it should be useful to graduate students in finance.*Provides practical guidance on financial risk management*Covers the latest developments in investment portfolio construction*Full coverage of the latest cutting edge research on measuring portfolio risk, alternatives to mean variance analysis, expected returns forecasting, the construction of global portfolios and hedge portfolios (funds)
| Author | : Frank J. Fabozzi |
| Publisher | : John Wiley & Sons |
| Total Pages | : 513 |
| Release | : 2007-04-27 |
| Genre | : Business & Economics |
| ISBN | : 0470164891 |
Praise for Robust Portfolio Optimization and Management "In the half century since Harry Markowitz introduced his elegant theory for selecting portfolios, investors and scholars have extended and refined its application to a wide range of real-world problems, culminating in the contents of this masterful book. Fabozzi, Kolm, Pachamanova, and Focardi deserve high praise for producing a technically rigorous yet remarkably accessible guide to the latest advances in portfolio construction." --Mark Kritzman, President and CEO, Windham Capital Management, LLC "The topic of robust optimization (RO) has become 'hot' over the past several years, especially in real-world financial applications. This interest has been sparked, in part, by practitioners who implemented classical portfolio models for asset allocation without considering estimation and model robustness a part of their overall allocation methodology, and experienced poor performance. Anyone interested in these developments ought to own a copy of this book. The authors cover the recent developments of the RO area in an intuitive, easy-to-read manner, provide numerous examples, and discuss practical considerations. I highly recommend this book to finance professionals and students alike." --John M. Mulvey, Professor of Operations Research and Financial Engineering, Princeton University
| Author | : G. A. Vijayalakshmi Pai |
| Publisher | : John Wiley & Sons |
| Total Pages | : 322 |
| Release | : 2017-12-27 |
| Genre | : Computers |
| ISBN | : 111948278X |
The book is a monograph in the cross disciplinary area of Computational Intelligence in Finance and elucidates a collection of practical and strategic Portfolio Optimization models in Finance, that employ Metaheuristics for their effective solutions and demonstrates the results using MATLAB implementations, over live portfolios invested across global stock universes. The book has been structured in such a way that, even novices in finance or metaheuristics should be able to comprehend and work on the hybrid models discussed in the book.
