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Pricing of Al-Urbun and a Class of Al-Istijrar Islamic Contracts under the Black–Scholes Framework

Author

Listed:
  • Joanna Goard

    (School of Mathematics and Applied Statistics, University of Wollongong, Wollongong, NSW 2522, Australia)

  • Mohammed AbaOud

    (Department of Mathematics and Statistics, Imam Mohammad Ibn Saud Islamic University (IMSIU), Riyadh 11564, Saudi Arabia)

Abstract

Islamic financial contracts necessarily need to abide by Shariah principles. As such, some contracts have been introduced for risk-hedging real transactions that differ from those seen in conventional financial markets. In this paper, we examine two such products, Al-Urbun and Al-Istijrar, and determine fair prices for both the Al-Urbun and a class of Al-Istijrar under the Black–Scholes framework.

Suggested Citation

  • Joanna Goard & Mohammed AbaOud, 2024. "Pricing of Al-Urbun and a Class of Al-Istijrar Islamic Contracts under the Black–Scholes Framework," Mathematics, MDPI, vol. 12(2), pages 1-11, January.
    • Handle: RePEc:gam:jmathe:v:12:y:2024:i:2:p:252-:d:1318089
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    References listed on IDEAS

    as
    1. Ghlamallah, E. & C. Alexakis & M. Dowling & Piepenbrink, A., 2021. "The topics of Islamic economics and finance research," Post-Print hal-03323676, HAL.
    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. Md. Habibur Rahman & N.M. Shafiul Islam Chowdhury, 2023. "The prospects ofistijrarfinancing in Islamic banking: an exploratory study in Bangladesh," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 16(1), pages 135-158, April.
    4. Ghlamallah, Ezzedine & Alexakis, Christos & Dowling, Michael & Piepenbrink, Anke, 2021. "The topics of Islamic economics and finance research," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 145-160.
    5. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    6. Ezzedine Ghlamallah & Christos Alexakis & Michael Dowling & Anke Piepenbrink, 2021. "The topics of Islamic economics and finance research," Post-Print hal-03511406, HAL.
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