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Utility Theory and the Capital Market

Utility Theory and the Capital Market


Lecturer: Lutz Kruschwitz 


Learning Objectives

This module conveys the skills needed to independently use and critically judge the current theoretical financing literature. The main focus of this module is on the methodology of neoclassical oriented theory. After completing the module, the students will be able to model economic decision problems from a financial perspective, develop solutions to these problems and independently evaluate alternative problems. On completion of this module, the students will be able to use information about the prices of securities to reach appropriate decisions regarding financing and investments.  


The five seminally and internally consistent theories upon which modern finance is founded are: (1) utility theory, (2) state preference theory, (3) mean variance portfolio theory, (4) the capital asset pricing model (CAPM) and arbitrage pricing theory, (5) and option pricing theory. All of these concepts are thoroughly presented and discussed in this module.





Forms of Teaching and Learning Classrooms Presence in Hours Forms of Active Participation Workload in Hours
Lecture, Tutorial 6 hours per week Discussion of selected issues, opinions on theses, discussion of tutorial assignments on the course content, working on small case studies  Lectures attendance 45

Preparation and studying of subject matter 75

Tutorial attendance 45

Preparation before and after tutorial 75

Preparation and taking of exam 60



Language: English

Total workload: 300

Module duration: One semester

Module frequency: Every spring semester

Prerequisites: None. However, basic knowledge of algebra, differential and integral calculus is strongly recommended. Furthermore, financial basic knowledge (discounting, deriving cashflows from annual audits) is also helpful. The students should also possess elementary knowledge of statistical methods.