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putcallparity"Islam's prohibition on paying interest has made it difficult for many Muslims living in the West to purchase homes. As a result, that prohibition has spurred some innovative home financing techniques using put-call parity. In one of the simplest of these transactions, the bank buys the house and sells it to its client for a higher price through an installment sale. Thus, instead of owning the house and taking out a mortgage, which would be written as S(t) - K*e-r(T-t), the client has agreed to buy the house, which can be written as C(t) - P(t). Viewed from the bank’ s perspective, it owns the house subject to the agreement to sell it to its client. Thus, the bank’ s position can be written as S(t) + P(t) - C(t), which from put-call parity is equivalent to K*e-r(T-t), a simple loan."

More interesting stuff here (pdf). Knoll concludes: Recent years has seen an explosion of financial innovation. Much of this innovation seeks to exploit inconsistencies in the regulatory environment, and one of the most popular techniques for doing so uses put-call parity. Nonetheless, regulatory arbitrage using put-call parity is not a new phenomenon, as is frequently suggested. It occurred in ancient Israel to evade the prohibition on charging interest. It also occurred in Medieval England, where it led to the development of the modern mortgage. And it is occurring today as Muslims in the West use mortgage substitutes to purchase homes. In addition, put-call parity is also being used today to try to evade the equity of redemption, the defining characteristic of the real estate mortgage, and statutory mortgagor protections.

related items:
Nontraditional Instruments, Mahalanobis
Paul N (guest) meinte am 6. Jun, 01:57:
The Islamic prohibition on interest is at least 10 times stupider than the Jewish prohibition of turning on your oven on Saturday. 
ziel (guest) antwortete am 6. Jun, 04:43:
Not to mention the hit their taking on taxes. Under these arrangements, Muslims are effectively paying ~30% more for their housing than everyone else. 
Joe Grossberg (guest) meinte am 6. Jun, 20:09:
Yes, but ...
"The Islamic prohibition on interest is at least 10 times stupider than the Jewish prohibition of turning on your oven on Saturday."

Well, yes, if you accept the premise that maximizing efficiency is the sole objective.

Strictly observant Muslims and Jews do not accept that premise.

They're not stupid; they just have different priorities.

Don't be so narrow-minded, guys. 
Mahalanobis antwortete am 7. Jun, 18:22:
are a little bit more advanced:

Fund with ethical orientation (SRI) for international equities

The fund invests in global equity markets. The assets are allocated exclusively in those international equities which are incorporated in the Ethical Index Global Return® managed by E. Capital Partners S.p.A.. This index is formed by a multi level and severe selection procedure which is based on Catholic and ethical principles and objectives. 
J.Klein (guest) meinte am 6. Jun, 22:01:
More Nontraditional Instruments are Needed
I am not sure if evading a clearcut prohibition to pay interest by the use of ingenious nontraditional financial instrument is kosher, I mean, religiously correct. If I were God I would hate to see my commandments thus twisted and neutered.

On the risk of provoking a riot, I would like to call your attention that more clever nontraditional instruments are needed. For example, the Prophet (sallallaahu ‘alaihi wa sallam) prohibited meeting caravans on route with the intention of purchasing goods before the sellers know the market price. He also prohibited persuading buyers to cancel their purchases from other vendors, and then sell them one's goods. This is tantamount to saying to someone who is buying an item for ten riyals, “Dont buy from my competitor, I have the same item for seven riyals for you.” 
anonymous (guest) antwortete am 6. Jun, 22:23:
Less Islam Needed
"This is tantamount to saying to someone who is buying an item for ten riyals, “Dont buy from my competitor, I have the same item for seven riyals for you.”"

Ummm. Yeah. That's called competition. I guess that since Islam prohibits everything from music, to portraits and sculptures, to the risk-free rate and financial risk, it should come as no surprise that Islam also prohibits economic competition. The authors of Islam were extremely incompetent when it came to economic and financial policy making. 
anonymous (guest) meinte am 6. Jun, 22:19:
Old Trick
I think that this is the same thing as contractum trinius, a legal maneuver used by European merchants to avoid anti-usury laws in the medieval ages. It makes very little sense reword in the problem in terms of puts and calls because according to Islam options are a form of gambling. In it's infinite "wisdom," Islam not only fixes the risk-free rate at 0%, it also prohibits financial risk-taking (gambling). This really isn't anything nearly as complicated as arbitrage or option pricing, this is just a series of very simple cash transactions which (when combined) replicate a fixed-rate loan. The only amazing thing here is that it was only in the late 20th century that Muslims finally discovered this loop-hole, while the Jews and Christians had been doing it for centuries. 
Paul N (guest) antwortete am 7. Jun, 03:19:
If Muslims can't gamble, then how can they start a company? How can they get out of bed in the morning? 
Osman (guest) antwortete am 2. Oct, 21:17:
Islam prohibits gambling because of the simple fact that you will lose everything eventually, which also is cosidered a major problem in America. Gambling is an addiction. Islam do not prohibit to start up a company or do all the other normal stuff where you lose some or win some, infact it is encounraged. Which brings us to fact that islam prohibits interest where you don't bare any risk, in islam you have to share the risk, there has to be a downfall. Stocks is good example of something islam allows that have return and also risk.
Read more often....(Advice)....
Islamic Prohibited Gambling (Casinos, Lottery, and so on)...Business risks is not gambling...(because you can minimize or eliminate the risk.) 
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