Article ID: | iaor2017394 |
Volume: | 64 |
Issue: | 4 |
Start Page Number: | 849 |
End Page Number: | 866 |
Publication Date: | Aug 2016 |
Journal: | Operations Research |
Authors: | Iyengar Garud, Haugh Martin, Wang Chun |
Keywords: | investment, government, allocation: resources, combinatorial optimization, simulation |
We consider dynamic asset allocation problems where the agent is required to pay capital gains taxes on her investment gains. These are very challenging problems because the tax owed whenever a security is sold depends on the cost basis, and this results in high‐dimensional problems, which cannot be solved exactly except in the case of very stylized problems with just one or two securities and relatively few time periods. In this paper, we focus on exact and average cost‐basis problems, make the