DRE 4024 Asset Pricing Theory I

DRE 4024 Asset Pricing Theory I

Course code: 
DRE 4024
Course coordinator: 
Costas Xiouros
Course name in Norwegian: 
Asset Pricing Theory I
Product category: 
PhD Finance courses
2022 Autumn
Active status: 
Level of study: 
Teaching language: 
Course type: 
One semester

The objective of this course, which is divided into two parts, is to undertake a rigorous study of the fundamental theories of modern financial economics regarding the role of asset markets and the determination of asset prices. Specifically, this course will give the students an overview of the field of asset pricing theory and will prepare the students for independent research in both empirical and theoretical asset pricing. We will work principally in discrete-time settings, but we may also introduce some analysis in continuous time. The course will cover the central themes of choice under uncertainty, static and dynamic portfolio choice, equilibrium, efficiency, and asset prices. We will cover both consumption-based as well as production-based theories and we will look at these theories in relation to both the cross-section and the time-series dimension of asset prices.

Learning outcomes - Knowledge

After taking part 1 of this course, the students will understand the main concepts used in theoretical and applied asset pricing, such as the absence of arbitrage, state prices, factor models, equilibrium, and efficiency. The students will appreciate this theory mostly in a static setting and in regards to the cross-section of asset prices and returns. The students will also learn the basics of dynamic asset pricing in endowment and production economies and the main challenges it aims to address.

Learning outcomes - Skills

Upon successful completion, students will be able to derive asset pricing implications and testable hypotheses of various models.

General Competence

Upon successful completion, students will be able to provide the economic intuition of various models in explaining asset prices and understand the challenges of the current theories.

Course content
  • Introduction to asset pricing and risk preferences
  • Static portfolio choice
  • Static asset pricing models: CAPM, APT, factor models
  • Equilibrium, efficiency, and the SDF
  • Dynamic portfolio choice and asset prices: Lucas model, ICAPM
  • Introduction to production-based asset pricing
Teaching and learning activities


Software tools
No specified computer-based tools are required.
Additional information



Enrollment in a PhD Programme is a general requirement for participation in PhD courses at BI Norwegian Business School.
External candidates are kindly asked to attach confirmation of enrollment in a PhD programme when signing up for a course. Other candidates may be allowed to sit in on courses by approval of the courseleader. Sitting in on a course does not permit registration for the course, handing in exams or gaining credits for the course. Course certificates or confirmation letters will not be issued for sitting in on courses.


Deviations in teaching and exams may occur if external conditions or unforeseen events call for this.

Required prerequisite knowledge


Exam category: 
Form of assessment: 
Written submission
Support materials: 
  • BI-approved exam calculator
  • Simple calculator
  • Monolingual dictionary, English-English
3 Hour(s)
Exam code: 
DRE 40241
Grading scale: 
All components must, as a main rule, be retaken during next scheduled course
Type of Assessment: 
Ordinary examination
Total weight: 
Sum workload: 

A course of 1 ECTS credit corresponds to a workload of 26-30 hours. Therefore a course of 3 ECTS credit corresponds to a workload of at least 80 hours.