IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v27y2024i07n08ns0219024925500025.html
   My bibliography  Save this article

Optimal Selling Time Of A Stock Under Capital Gains Taxes

Author

Listed:
  • CHRISTOPH KÃœHN

    (Institut für Mathematik, Johann Wolfgang Goethe-Universität, D-60054 Frankfurt am Main, Germany)

  • BUDHI SURYA

    (School of Mathematics and Statistics, Victoria University of Wellington, Wellington 6140, New Zealand)

  • BJÖRN ULBRICHT

    (DZ Bank AG, D-60325 Frankfurt am Main, Germany)

Abstract

We investigate the impact of capital gains taxes on optimal investment decisions in a quite simple model. Namely, we consider a risk-neutral investor in the Black–Scholes model who owns one risky stock and determine the optimal stopping time at which he/she sells the stock to invest the proceeds in the bank account up to the maturity date. At the time the stock is sold, the investor has to realize book profits which triggers tax payments. For a linear tax, we derive a boundary that is continuous and increasing in time and decreasing in the volatility of the stock such that the investor sells the stock at the first time its price is smaller or equal to this boundary. For a variant of the problem with an exponentially distributed time horizon, we determine the boundary explicitly. In addition, we show how the structure of the stopping region changes if there are no tax credits for realized losses in the stock. Some numerical examples are given to exemplify the results.

Suggested Citation

  • Christoph Kãœhn & Budhi Surya & Bjã–Rn Ulbricht, 2024. "Optimal Selling Time Of A Stock Under Capital Gains Taxes," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 27(07n08), pages 1-34, December.
    • Handle: RePEc:wsi:ijtafx:v:27:y:2024:i:07n08:n:s0219024925500025
    DOI: 10.1142/S0219024925500025
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219024925500025
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219024925500025?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:27:y:2024:i:07n08:n:s0219024925500025. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.