The Implications of Financial Market Frictions and Tax Code Convexity for Dynamic Risk Budgeting (in Persian)

Risk management is central to the operations of economic enterprises—particularly financial institutions—and is critical for long-term viability and for maintaining dynamic consistency with constraints imposed by available economic capital. These considerations have intensified scholarly and managerial interest in risk budgeting frameworks. This study focuses on dynamic risk budgeting within a parsimonious analytical setting that explicitly incorporates key real-world characteristics and structural determinants. To this end, a time-consistent continuous-time dynamic stochastic partial equilibrium model of agents’ decision-making is developed to examine how financial market frictions and tax code convexity affect dynamic risk budget adjustments and optimal hedging strategies. The analysis demonstrates that, under certain conditions, market frictions and distortionary policy interventions generate distributional effects on hedged returns, thereby influencing dynamic risk budgeting outcomes. The interaction between market frictions and tax convexity is further explored, along with its implications for policy design and financial regulation. Quantitative simulations are used to assess the role of transaction costs in each setting, highlighting their impact on risk budgeting dynamics.