We examine how Federal Open Market Committee (FOMC) meetings influence international stock returns, highlighting that the standard Fed news channel creates an even-week pattern in the United States and other highly integrated developed markets. By analyzing the Chinese market, we demonstrate that the news channel contributes to higher returns, operating in non-US countries even without international equity flows. Additionally, we identify an uncertainty channel that produces a contrasting odd-week pattern. Placebo tests indicate that the effectiveness of the uncertainty channel may depend on the financial market’s openness. Overall, our research enriches and extends the existing view on how the Federal Reserve, as the leader of central banks, shapes international stock market returns throughout the entire FOMC cycle.

Policy actions by the Federal Reserve during the recent financial crisis often involve recapitalization of banks. This paper offers a theory of the non-neutrality of money for policy actions taking the form of injecting capital into banks via nominal transfers, in an environment where banking frictions are present in the sense that there exists an agency cost problem between banks and their private-sector creditors. The analysis is conducted within a general equilibrium setting with two-sided financial contracting. We first show that even with perfect nominal flexibility, the recapitalization policy can have real effects on the economy. We then study the design of the optimal long-run recapitalization policy as well as the optimal short-run policy responses to banking riskiness shocks.

This paper deals with the option-pricing problem. In the first part of the paper we study in more details the discrete setting of the option-pricing problem usually referred to as the binomial scheme. We highlight basic differences between the old and the new approaches. The main qualitative distinction of the new pricing approach from either binomial or Black Scholes’s is that it represents the option price as a stochastic process. This stochastic interpretation can not give straightforward advantage for an investor due to stochastic setting of the pricing problem. The new approach explicitly states that the options price is more risky than represented by binomial scheme or Black Scholes theory. Continuous setting will be considered in the second part of the paper following [1]. One significant conclusion follows from the new model. It states that there is no sense in using either neutral probabilities or ‘neutral world’ applications for options valuation either theoretically or numerically. Recall that after the Black Scholes’ publication [2] the ‘simplified’ approach named later binomial scheme was introduced in [3]. In this paper referring to the historical tradition we first represent discrete scheme. In several examples we discuss two-period plain vanilla option valuation. Then we extend the discrete scheme applications to an exotic option-pricing referred to as a compound option. The compound option in Black Scholes setting was first studied in [4] and then in [5,6]. To highlight the difference between stochastic and deterministic option price definitions note that if a deterministic value is interpreted as a perfect or fair price we can comment that the stochastic interpretation provides this number or any other with the probability that real world option value at maturity will be bellow chosen number. This probability is a pricing risk of the option. Thus with an investor’s motivation of the option pricing the stochastic approach gives information about the risk taking. The investor analyzing option price and corresponding risk makes a decision to purchase the option or not. As far as this paper presents alternative point on option pricing it might be useful to present a short history of this development. Recall that according the US law institutions must provide clients by the risk information regarding client’s prospective on their investments. This circumstance implies importance new approach measuring risk of investments. Different parts of this paper were submitted and sent to journals, conferences, and prominent professors. The third part of the paper was sent to Federal Reserve from the Congressman office and simple examples showing drawbacks of the benchmark option valuation method were submitted to SEC in August 2002.