Empirical Studies of household portfolios have shown that young and relatively poor households hold under-diversified portfolios that are concentrated in a small number of assets, a fact often attributed to various behavioral biases. We present a model in which relatively poor investors, i.e.,...

The tax rate on capital gains of equity securities has varied substantially over time and correlates negatively with realized capital gains and collected taxes. Our model shows that investors who anticipate the dynamics of the capital gains tax rate in their bond-equity mix, realize more gains...

We develop a numerical method that combines functional approximations and dynamic programming to solve high-dimensional discrete-time stochastic control problems under general constraints. The method employs quasi-random grids and radial basis functions to handle high-dimensional state spaces;...