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The dynamic programming equation for the problem of optimal investment under capital gains taxes

Ben-Tahar, Imen and Soner, Halil Mete and Touzi, Nizar (2007) The dynamic programming equation for the problem of optimal investment under capital gains taxes. (Accepted/In Press)

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Abstract

This paper considers an extension of the Merton optimal investment problem to the case where the risky asset is subject to transaction costs and capital gains taxes. We derive the dynamic programming equation in the sense of constrained viscosity solutions. We next introduce a family of functions, which converges to our value function uniformly on compact subsets, and which is characterized as the unique constrained viscosity solution of an approximation of our dynamic programming equation. In particular, this result justifies the numerical results reported in the accompanying paper by the authors.

Item Type:Article
Subjects:H Social Sciences > HG Finance
Q Science > QA Mathematics
ID Code:7100
Deposited By:Halil Mete Soner
Deposited On:16 Nov 2007 10:21
Last Modified:16 Nov 2007 10:21

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