Asset Pricing Theory/Financial Economics I
Spring 2023


Kerry Back
J. Howard Creekmore Professor of Finance and Professor of Economics

Class Meeting

TTh 2:30-3:45
Room 216, McNair Hall


Asset Pricing and Portfolio Choice Theory, Oxford University Press, 2nd Edition, 2017.

Course Description

This course is an introduction to asset pricing and portfolio choice theory. This is the foundation for the ‘investments’ branch of finance. Understanding how assets are priced is also important for issuing entities, like corporations, so asset pricing is also part of the foundation for corporate finance. Of course, prices are determined by supply and demand. We take supply (a topic in corporate finance) as given in this course and study demand (portfolio choice).

Uncertainty and time are the two key elements of portfolio choice. We will start with single-period models and then move to dynamic models in both discrete and continuous time. We’ll develop the theory of dynamic programming in continuous time and use it to study portfolio choice and some corporate investment decisions. Dynamic programming and other aspects of the mathematics of uncertainty in continuous time are useful in other areas of economics and finance as well.

Course Calendar

This is a cross-listed course between the Jones School and the School of Social Sciences. We will follow the School of Social Sciences academic calendar. We meet TTh from 2:30-3:45 commencing January 10. The last class day is April 20. There will be no class on February 9 (spring recess) or on March 14 and March 16 (spring break). The midterm exam will be February 28. The final exam will be during exam week. The course schedule by week is linked above.


Grades will be based 20% on biweekly individual homework assignments, 20% on the midterm exam, 10% on class participation, and 50% on the final exam. Class participation means being present and attentive in class.

Honor Code

The Rice University Honor Code applies to all work in this course. The intent of the Honor Code in general and specifically in this course is to ensure that each student claims and receives credit for their own efforts. The intent is not to limit the valuable exchange of ideas through discussion among fellow students. The atmosphere at Rice University must be one of academic and personal integrity. Any suspected violations of the Honor Code are submitted to the Rice University Honor Council.

Disability Accommodations

Any student with a disability requiring accommodations in this class should contact me after contacting the Disabled Student Services office