Risk-sharing finance governance: Islamic vs conventional indexes option pricing

Abstract

Purpose

Risk governance has an important influence on the hedging performances in option pricing and portfolio hedging in both discrete and dynamic case for both conventional and Islamic indexes. The paper aims to discuss these issues.

Design/methodology/approach

This paper explores option pricing and portfolio hedging in a discrete and dynamic case with transaction costs. Monte Carlo simulations are applied to both conventional and Islamic indexes in US and UK markets. Simulations show that conventional and Islamic assets do not exhibit the same price and portfolio hedging strategy governance.

Findings

The authors conclude that Islamic assets show different option price and hedging strategy compared to their conventional counterpart.

Originality/value

The research question of this paper aims at filling the gap in the empirical literature by exploring option price and hedging structure for both conventional and Islamic indexes in US and UK stock markets.

Citation

Hamdi, H. and Majdoub, J. (2018), "Risk-sharing finance governance: Islamic vs conventional indexes option pricing", Managerial Finance, Vol. 44 No. 5, pp. 540-550. https://doi.org/10.1108/MF-05-2017-0199