William F. Sharpe says his pioneering work on the Capital Asset Pricing Model is ready for a makeover.

The 42-year-old model — which earned Mr. Sharpe a Nobel Memorial Prize in economics in 1990 — is being revamped because Mr. Sharpe says he found a better way for portfolio managers and business-school students to learn about how portfolios are constructed and securities are priced.

CAPM, along with portfolio theory, developed by Mr. Sharpe's mentor and co-Nobel winner Harry Markowitz, is the foundation of every finance program in the country, if not the world.

His latest book, "Investors and Markets: Portfolio Choices, Asset Prices and Investment Advice," may send investors and academics scurrying. Published this month by Princeton Univer- sity Press, the book eschews mean-variance analysis — the mathematically complex formula that relates rewards to risks of securities or portfolios — in favor of a "state/preference" approach that relies on an easy-to-understand simulation. The state/preference approach is based on a model closer to that used in financial engineering than in the ivory tower.

"I think of it as ‘beyond mean-variance,'" Mr. Sharpe said in an interview.

Whether that approach will work in the real world is unknown. Mr. Sharpe says he is just starting work on applying it to asset allocation. If the approach proves successful, it could result in a shift away from the traditional mean-variance optimizer used in establishing asset mixes and managing securities portfolios.

Mr. Sharpe gets high marks for his willingness to reassess the validity of his earlier thinking.

"I like many things about Bill Sharpe," said Meir Statman, Glenn Klimek Professor of Finance at Santa Clara University's Leavey School of Business, Santa Clara, Calif. "One of them is that he's not busy protecting things that he's done as a young man. Because what this is, is a new approach to asset pricing that undermines the CAPM. ‘Well,' (Mr. Sharpe) says, ‘so be it.'"