On the pareto-optimality of futures contracts over Islamic forward contracts: implications for the emerging Muslim economies.

Ebrahim, Muhammed-Shahid; Rahman, Shafiqur

Abstract

A general equilibrium approach is used to demonstrate that: (i) futures contracting (on Islamically permissible commodities) is pareto-optimal over the Islamic forward contract of Bai’ Salam; and (ii) both forms of contracting constitute a quasi-equity claim instead of debt (dayn) as construed by the majority of Islamic jurists. These results are of import as they: (i) remove a major hurdle against futures contracting by the Islamic jurists thereby enabling the renovation of the financial intermediation system of emerging Muslim economies; and (ii) demonstrate that the arbitrage principle needs to be re-examined under non-linear asset pricing.

Citation

Ebrahim, M., & Rahman, S. (2005). On the pareto-optimality of futures contracts over Islamic forward contracts: implications for the emerging Muslim economies. Journal of Economic Behavior and Organization, 56(2), 273-295. https://doi.org/10.1016/j.jebo.2003.09.007

• Journal Article Type: Article
• Publication Date: 2005-02
• Deposit Date: Sep 25, 2014
• Journal: Journal of Economic Behavior and Organization
• Print ISSN: 0167-2681
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 56
• Issue: 2
• Pages: 273-295
• DOI: https://doi.org/10.1016/j.jebo.2003.09.007
• Public URL: https://durham-repository.worktribe.com/output/1453663