On the pareto-optimality of futures contracts over Islamic forward contracts: implications for the emerging Muslim economies [An article from: Journal of Economic Behavior and Organization]

by M.S. Ebrahim, S. Rahman

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This digital document is a journal article from Journal of Economic Behavior and Organization, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
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.

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