We consider a general multivariate financial market with transaction costs as in Kabanov and we analyse the stochastic control problems of maximizing the expected utility of the liquidation value of terminal wealth diminished by some random claim G for a utility function of exponential form.

A Bayesian estimation procedure is developed for estimating multiple regime vector autoregressive models appropriate for deviations from financial arbitrage relationships. This approach has clear advantages over classical stepwise threshold autoregressive analysis.

This paper presents an empirical test of Dupire's (1993) option price inversion approach using FT-SE 100 index options.