Asset Pricing Theory / Financial Economics I
Rice University
Spring 2024
Instructor
Kerry Back
J. Howard Creekmore Professor of Finance and Professor of Economics
kerryback@gmail.com
Teaching Assistants
Meeting Schedule
Room 317, McNair Hall
TTh 2:30 – 3:45
1/9/2024 – 4/18/2024
Textbook
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 9. The last class day is April 18. Per the university calendar, there will be no class on February 8 or on March 12 and March 14 (spring break). The midterm exam will be February 29. The final exam will be during exam week.
Course Schedule by Week
- Jan 9-11: Chapter 1
- Jan 16-18: Chapter 2
- Jan 23-25: Chapters 3 and 4
- Jan 30-Feb 1: Chapter 5
- Feb 6: Chapter 6
- Feb 13-15: Chapter 7
- Feb 20-22: Chapters 8 and 9
- Feb 27-29: Review and Midterm Exam
- Mar 5-7: Chapter 12
- Mar 12-14: Spring Break
- Mar 19-21: Chapter 13
- Mar 26-28: Chapter 14
- Apr 2-4: Chapter 15
- Apr 9-11: Chapter 16
- Apr 16-18: Chapter 19 and Review
- Apr 24-30: Finals Period
Grading
Grades will be based 40% on individual homework assignments, 20% on the midterm exam, 10% on class participation, and 30% on the final exam. Class participation means being present and attentive in class. Late homeworks will not be accepted, but I will drop the lowest homework score.
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