IDEAS home Printed from https://ideas.repec.org/a/abd/kauiea/v31y2018i2no9p111-131.html
   My bibliography  Save this article

Modeling Prices of Islamic Commodity Swaption نمذجة أسعار عقود سلع المبادلة الإسلامية

Author

Listed:
  • Nahla Ghazi Aljudaibi

    (Effat University, Jeddah, Saudi Arabia)

  • Shabir Ahmad Hakim

    (Effat University, Jeddah, Saudi Arabia)

  • Tahar Tayachi

    (Effat University, Jeddah, Saudi Arabia)

Abstract

Derivatives that manage commodity risk over multiple periods are not Shariah-compliant. This study proposes a Shariah-compliant swaption model (wa'din or two promises on swap) for hedging commodity risk. The model combines two separate and independent wa'ds (wa'din) on commodity swap through murabahah contract. Black (1976) model is used to determine the intrinsic value for the counter-parties involved in the contract. The risk-free rate is replaced with the return on AAA Sukuk to make Black (1976) model Shariah compliant. The proposed Shariah-compliant model is compared with the conventional swaption model, and with the Islamic commodity option (wa'din on commodity) for its effectiveness. The tests of the model show that the proposed Islamic pricing model has a higher positive effect than the conventional swaption model. In addition, the proposed Islamic commodity swaption is more efficient than Islamic commodity options. The reliability of the proposed model was established by the Monte Carlo simulation run with 10,000 iterations. إن المشتقات التي تدير مخاطر السلع على مدى فترات متعددة ليست متوافقة مع الشريعة الإسلامية. تقترح هذه الدراسة نموذج خيار مبادلة أسعار السلع متوافق مع الشريعة الإسلامية (نموذج الوعدين على مبادلة السلع) للتحوط من مخاطر السلع. يجمع النموذج بين وعدين على مبادلة السلع من خلال عقد المرابحة. تم استخدم نموذج بلاك (1976م) لتحديد القيمة الجوهرية للأطراف المقابلة المشاركة في العقد. ولكي نجعل نموذج بلاك متوافقاً مع الشريعة الإسلامية استبدلنا المعدل الخالي من المخاطر بالعائد على الصكوك ذات التصنيف الائتماني المرتفع (AAA). وقد قام الباحثون أيضاً بمقارنة النموذج المقترح مع نموذج خيار مبادلة أسعار الفائدة التقليدية، ومع خيار السلع الإسلامية (وعدان على السلع) لمعرفة مدى فعاليته وتأثيره. تظهر نتائج اختبارات النموذج أن نموذج التسعير الإسلامي المقترح له تأثير إيجابي أعلى من نموذج خيار مبادلة أسعار الفائدة التقليدي. علاوة على ذلك، فإن نموذج خيار مبادلة السلع الإسلامية المقترح أكثر كفاءة من نموذج خيارات السلع الإسلامية. وقد تم إثبات موثوقية النموذج المقترح من خلال محاكاة مونتي كارلو التي أجريت مع 10,000 تكرار.

Suggested Citation

  • Nahla Ghazi Aljudaibi & Shabir Ahmad Hakim & Tahar Tayachi, 2018. "Modeling Prices of Islamic Commodity Swaption نمذجة أسعار عقود سلع المبادلة الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 31(2), pages 111-131, July.
  • Handle: RePEc:abd:kauiea:v:31:y:2018:i:2:no:9:p:111-131
    DOI: 10.4197/Islec.31-2.9
    as

    Download full text from publisher

    File URL: https://iei.kau.edu.sa/Files/121/Files/153869_31-02-09-0NahlaGhazi.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.4197/Islec.31-2.9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Hou Author-Name: David Skeie, 2013. "LIBOR: origins, economics, crisis, scandal and reform," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    3. Alejandro García & Andrei Prokopiw, 2010. "Market Expectations and Option Prices: Evidence for the Can$/US$ Exchange Rate," Discussion Papers 10-2, Bank of Canada.
    4. Shabir Ahmad Hakim & Zarinah Hamid & Ahamed Kameel Mydin Meera, 2016. "Capital Asset Pricing Model and Pricing of Islamic Financial Instruments نموذج تسعير الأصول الرأسمالية وتسعير الأدوات المالية الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 29(1), pages 21-39, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bachmair, K., 2023. "The Effects of the LIBOR Scandal on Volatility and Liquidity in LIBOR Futures Markets," Cambridge Working Papers in Economics 2303, Faculty of Economics, University of Cambridge.
    2. Ben Abdallah, Skander & Lasserre, Pierre, 2016. "Asset retirement with infinitely repeated alternative replacements: Harvest age and species choice in forestry," Journal of Economic Dynamics and Control, Elsevier, vol. 70(C), pages 144-164.
    3. Kau, James B. & Keenan, Donald C., 1999. "Patterns of rational default," Regional Science and Urban Economics, Elsevier, vol. 29(6), pages 765-785, November.
    4. Carol Alexandra & Leonardo M. Nogueira, 2005. "Optimal Hedging and Scale Inavriance: A Taxonomy of Option Pricing Models," ICMA Centre Discussion Papers in Finance icma-dp2005-10, Henley Business School, University of Reading, revised Nov 2005.
    5. William R. Morgan, 2023. "Finance Must Be Defended: Cybernetics, Neoliberalism and Environmental, Social, and Governance (ESG)," Sustainability, MDPI, vol. 15(4), pages 1-21, February.
    6. Filipe Fontanela & Antoine Jacquier & Mugad Oumgari, 2019. "A Quantum algorithm for linear PDEs arising in Finance," Papers 1912.02753, arXiv.org, revised Feb 2021.
    7. Jean-Philippe Aguilar, 2021. "The value of power-related options under spectrally negative Lévy processes," Review of Derivatives Research, Springer, vol. 24(2), pages 173-196, July.
    8. Norden, Lars, 2003. "Asymmetric option price distribution and bid-ask quotes: consequences for implied volatility smiles," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 423-441, December.
    9. Leluc, Rémi & Portier, François & Zhuman, Aigerim & Segers, Johan, 2023. "Speeding up Monte Carlo Integration: Control Neighbors for Optimal Convergence," LIDAM Discussion Papers ISBA 2023019, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    10. Weihan Li & Jin E. Zhang & Xinfeng Ruan & Pakorn Aschakulporn, 2024. "An empirical study on the early exercise premium of American options: Evidence from OEX and XEO options," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(7), pages 1117-1153, July.
    11. Loncarski, I. & Ter Horst, J.R. & Veld, C.H., 2006. "Why do Companies issue Convertible Bond Loans? An Empirical Analysis for the Canadian Market," Discussion Paper 2006-65, Tilburg University, Center for Economic Research.
    12. Jun, Doobae & Ku, Hyejin, 2015. "Static hedging of chained-type barrier options," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 317-327.
    13. Thomas Kokholm & Martin Stisen, 2015. "Joint pricing of VIX and SPX options with stochastic volatility and jump models," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 16(1), pages 27-48, January.
    14. Gordian Rättich & Kim Clark & Evi Hartmann, 2011. "Performance measurement and antecedents of early internationalizing firms: A systematic assessment," Working Papers 0031, College of Business, University of Texas at San Antonio.
    15. Boyle, Glenn & Clyne, Stefan & Roberts, Helen, 2005. "Valuing Employee Stock Options: Implications for the Implementation of NZ IFRS 2," Working Paper Series 18949, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    16. Abdul Karim Aldohni, 2018. "Is Ethical Finance the Answer to the Ills of the UK Financial Market? A Post-Crisis Analysis," Journal of Business Ethics, Springer, vol. 151(1), pages 265-278, August.
    17. Paul Ormerod, 2010. "La crisis actual y la culpabilidad de la teoría macroeconómica," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 12(22), pages 111-128, January-J.
    18. An Chen & Thai Nguyen & Thorsten Sehner, 2022. "Unit-Linked Tontine: Utility-Based Design, Pricing and Performance," Risks, MDPI, vol. 10(4), pages 1-27, April.
    19. Kearney, Fearghal & Shang, Han Lin & Sheenan, Lisa, 2019. "Implied volatility surface predictability: The case of commodity markets," Journal of Banking & Finance, Elsevier, vol. 108(C).
    20. Álvarez Echeverría Francisco & López Sarabia Pablo & Venegas Martínez Francisco, 2012. "Valuación financiera de proyectos de inversión en nuevas tecnologías con opciones reales," Contaduría y Administración, Accounting and Management, vol. 57(3), pages 115-145, julio-sep.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:abd:kauiea:v:31:y:2018:i:2:no:9:p:111-131. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: King Abdulaziz University, Islamic Economics Institute. (email available below). General contact details of provider: https://edirc.repec.org/data/cikausa.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.