Penalty Method For Portfolio Selection With Capital Gains Tax
Download Penalty Method For Portfolio Selection With Capital Gains Tax full books in PDF, epub, and Kindle. Read online free Penalty Method For Portfolio Selection With Capital Gains Tax ebook anywhere anytime directly on your device. Fast Download speed and no annoying ads. We cannot guarantee that every ebooks is available!
Author | : Baojun Bian |
Publisher | : |
Total Pages | : 46 |
Release | : 2019 |
Genre | : |
ISBN | : |
Many finance problems can be formulated as a singular stochastic control problem, where the associated Hamilton-Jacobi-Bellman (HJB) equation takes the form of variational inequality and its penalty approximation equation is linked to a regular control problem. The penalty method, as a finite difference scheme for the penalty equation, has been widely used to numerically solve singular control problems, and its convergence analysis in literature relies on the uniqueness of solution to the original HJB equation problem. We consider a singular stochastic control problem arising from continuous-time portfolio selection with capital gains tax, where the associated HJB equation problem admits infinitely many solutions. We show that the penalty method still works and converges to the value function which is the minimal (viscosity) solution of the HJB equation problem. Numerical results are presented to demonstrate the efficiency of the penalty method and to better understand optimal investment strategy in the presence of capital gains tax. Our approach sheds light on the robustness of the penalty method for general singular stochastic control problems.
Author | : Jason Benjamin Schattman |
Publisher | : |
Total Pages | : 194 |
Release | : 2000 |
Genre | : |
ISBN | : |
Author | : Chin-sun Yi |
Publisher | : |
Total Pages | : 316 |
Release | : 1986 |
Genre | : Portfolio management |
ISBN | : |
Author | : Earl G. Hotrum |
Publisher | : |
Total Pages | : 40 |
Release | : 1976 |
Genre | : Capital gains tax |
ISBN | : |
Author | : Andrew B. Lyon |
Publisher | : |
Total Pages | : 48 |
Release | : 2010 |
Genre | : |
ISBN | : |
We provide new data on capital gains realizations using a five-year stratified panel of taxpayers covering 1985-1989. We find, as earlier studies have, that capital gains realizations are very concentrated among the highest income groups. We use these data and data from the Federal Reserve Board Survey of Consumer Finances to draw inferences from a simulation model of the effects on progressivity and efficiency of alternative tax treatment of capital gains. Tax payments alone are not an accurate indication of the burden of a tax. Taxes generally create costs beyond the dollar value collected by causing persons to change their behavior to avoid the tax. Risk is also affected by the tax system. Beneficial risk-sharing characteristics of the tax system are frequently overlooked when examining the treatment of capital gains, We find that reforms comprising reductions in the capital gains tax rate offset by increases in the tax rate on other investment income are efficiency reducing. Surprisingly, we find that for taxpayers for whom loss limits are not binding a switch to accrual taxation is also efficiency reducing. For those taxpayers for whom loss limits are potentially binding, we find that large efficiency gains can be achieved by increasing the amount of capital losses that may be deducted against ordinary income. These results are partly attributable to changes in risk-sharing encompassed in these reforms.
Author | : Lorenzo Garlappi |
Publisher | : |
Total Pages | : 54 |
Release | : 2001 |
Genre | : |
ISBN | : |
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 | : Kaye A. Thomas |
Publisher | : Fairmark Press Inc. |
Total Pages | : 322 |
Release | : 2004 |
Genre | : Business & Economics |
ISBN | : 0967498112 |
A complete, authoritative guide to taxation of stocks, mutual funds and market-traded stock options.
Author | : Min Dai |
Publisher | : |
Total Pages | : 25 |
Release | : 2008 |
Genre | : |
ISBN | : |
We are concerned with numerical solutions for the continuous-time portfolio selection with proportional transaction costs which is described as a singular stochastic control problem. The associated value function is governed by a variational inequality with gradient constraints. We propose a penalty method to deal with the gradient constraints and employ the finite difference discretization. Convergence analysis is presented. We also show that the standard penalty method can be applied in the case of single risky asset where the problem can be reduced to a standard variational inequality. Numerical results are given to demonstrate the efficiency of the methods and to examine the behaviors of the optimal trading strategy.
Author | : Michael Haliassos |
Publisher | : |
Total Pages | : 37 |
Release | : 1993 |
Genre | : |
ISBN | : |
Author | : Nicolas Chapados |
Publisher | : Springer Science & Business Media |
Total Pages | : 107 |
Release | : 2011-07-12 |
Genre | : Computers |
ISBN | : 1461405777 |
This brief offers a broad, yet concise, coverage of portfolio choice, containing both application-oriented and academic results, along with abundant pointers to the literature for further study. It cuts through many strands of the subject, presenting not only the classical results from financial economics but also approaches originating from information theory, machine learning and operations research. This compact treatment of the topic will be valuable to students entering the field, as well as practitioners looking for a broad coverage of the topic.