Abstract

http://ssrn.com/abstract=1260110
 
 

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Islamic Hedging: Gambling or Risk Management?


Saadiah Mohamad


Universiti Teknologi MARA, Malaysia

Ali Tabatabaei


University of Technology MARA (UiTM)

August 27, 2008

Islamic Law and Law of the Muslim World Paper No. 08-47
21st Australasian Finance and Banking Conference 2008 Paper

Abstract:     
Although there is a lack of consensus regarding derivatives and the development of sharia-compliant funds to mimic hedge funds in order to tap the global surplus liquidity especially the Gulf petrodollar, sharia scholars are generally agreeable that hedging is permissible and necessary as a risk management tool. However, there is still considerable debate regarding the kind of instruments that could be sharia-compliant. This paper looks at the main forms of hedging and examines the debate surrounding the use of derivatives in Islamic financial markets. The paper then looks at alternatives for sharia-compliant hedging mechanisms and in particular examines an Islamic financial derivative of Bai Salam that can mimic a short sale in a conventional option, but with potential for becoming a more superior risk management tool.

Number of Pages in PDF File: 19

Keywords: Islamic hedging, derivatives, sharia-compliant

JEL Classification: G1, G13, G15, G3

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Date posted: August 29, 2008 ; Last revised: November 18, 2008

Suggested Citation

Mohamad, Saadiah and Tabatabaei, Ali, Islamic Hedging: Gambling or Risk Management? (August 27, 2008). Islamic Law and Law of the Muslim World Paper No. 08-47; 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: http://ssrn.com/abstract=1260110 or http://dx.doi.org/10.2139/ssrn.1260110

Contact Information

Saadiah Mohamad (Contact Author)
Universiti Teknologi MARA, Malaysia ( email )
40450 Shah Alam
Johor
Dungun, Selangor 23000
Malaysia
+6013 346 4310 (Phone)
+603 5521 1442 (Fax)
Ali Tabatabaei
Universiti Teknologi MARA (UiTM) ( email )
40450 Shah Alam
Johor
Dungun, Selangor 23000
Malaysia
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