Value Preservation through Risk Management - A Shariah Compliant Proposal for Equity Risk Management

Obiyathulla Bacha

MPRA Paper from University Library of Munich, Germany

Abstract: This paper makes a case for the preservation of Muslim Wealth through risk management. It provides an exposition of risk management techniques used in conventional finance and outlines the limitations faced by Muslim fund managers and businesses. This limitation arises from the proscription of key risk-management tools, in particular financial derivatives. Though the reasons for the prohibition are diverse, the overriding concern appears to be that they encourage speculative behaviour. As such the emphasis of Islamic risk management has been on, On Balance Sheet methods. The problem with On Balance Sheet methods is that they require the restructuring of business transactions which can render businesses less competitive and subject to residual risk. The paper proposes a portfolio insurance scheme that uses the logic and mechanics of conventional Index Put Options but in a Shariah compliant manner. The proposal is intended to strike a balance between the need to avoid speculation and the genuine need for hedging equity risks.

Keywords: Shariah compliant; equity risk management (search for similar items in EconPapers)
JEL-codes: A10 D53 D69 (search for similar items in EconPapers)
Date: 2004, Revised 2003-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in The European Journal Of Management And Public Policy 1.3(2004): pp. 65-83

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/12632/1/MPRA_paper_12632.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:12632

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().