BFS 2002 

Contributed Talk 
Stanley Pliska, Tomasz Bielecki, Jean Philippe Chancelier, Agnes Sulem
We develop methods of risk sensitive impulsive control theory in order to solve an optimal asset allocation problem with transaction costs and a stochastic interest rate. The optimal trading strategy and the risksensitized expected exponential growth rate of the investor's portfolio are characterized in terms of a nonlinear quasivariational inequality. This problem can then be interpreted as the ergodic IsaacHamiltonJacobi equation associated with a minmax problem. We use a numerical method based on an extended twostage HowardGaubert algorithm and provide numerical results for the case of two assets and one factor that is a Vasicek interest rate.