In this study, optimal portfolio of an investor is studied when there are taxes, dividends, transaction costs and a risk-free asset with time varying rate of returns under constant elasticity of variance model. The Hamilton-Jacob–Bellman (HJB) equation associated with the optimization problem is obtained using the Ito’s lemma. Explicit solution of the power utility maximization is obtained. It is found that the optimal investment of the investor is dependent on horizon and wealth. Also found is that the investment in the risky asset increased by a fraction of the wealth when transaction costs and taxes are charged on the total investment of the investor. The investor should take the horizon and wealth dependency of his investment into consideration when making investment policy decisions.
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