Hi there, Currently, I am doing a feasibilty study of doing a project in developing Islamic Financial product such as Credit Derivative Options, Swap, Structured Product and etc. using Financial Engineering technology. There are several questions that I wish you guys could help...What is the main challenge in developing financial product that is comply to the Islam?What would be the challeges for a none Muslim who would like to venture into Islamic finance?What is the market demand of Quantitative Professional who is knowledgeable in Islamic Finance? Where are the financial centers that have huge demand on Islamic quant professional?Thank you.Cheers,Bob

QuoteOriginally posted by: boblauWhat is the main challenge in developing financial product that is comply to the Islam?IMHO, the first challenge is complying with their prohibition of Riba/usury, since many structured products depend heavily on an interest rate component, and even the price/replicating portfolio of a Black-Scholes option assumes borrowing and lending at an interest rate. That said, I have done trades with Islamic banks that as best as I can put it look like commodity repos, so I'm sure there are interpretations/structures that will work.QuoteWhat would be the challeges for a none Muslim who would like to venture into Islamic finance?Probably learning Islamic law; I can't imagine it being too much different/harder than wanting to venture into finance in the US and having to learn all of our laws.QuoteWhere are the financial centers that have huge demand on Islamic quant professional?Dubai and Bahrain are the first places that comes to mind. Check any of the cities in the Middle East and North Africa, although I'm sure their adoption to "modern" Islamic finance will not be uniform. There's probably also a fair amount of opportunity in places with large numbers of muslims like Indonesia, Malaysia, Pakistan, India, and some former Soviet states.No doubt that New York and London will remain on the cutting edge to offer the best financial products to the Islamic world, so I won't be moving anytime soon for non-culinary reasons

as exotiq said, there are commodity forward contracts such as Salam and Murabaha which allow you to replicate interest rate products (zero coupon notes) and equity/commodity forwards. Using these and SPV's one can actually replicate call and put options. There is supposed to be a good paper on the Central Bank of Bahrain's web page on Islamic Finance.The biggest market for such products is probably still Saudi, followed by places like Kuwait and Oman. However most of the structuring is done out of London and not locally.

Thanx mates. Wish you guys have a wonder new year ahead. Cheers,Bob

Riaz who teaches part of the CQF has qualifications in Islamic banking as well.

HSBC in Malaysia are getting to be pretty active in it. I hear Citibank was active in it, but decided to delay post 9/11, but HSBC quick surge prompted a lot of foreign banks including Citi to jump start and get moving again. StandChart has started to move in as well. In general, M'sian market is taking the lead in South East Asia. With I think Bahrain taking the lead in the gulf. M'sia islamic rules are generally known to be more relaxed and less stringent compared to Bahrain. As a result the Msian markets tend to be more innovative with new instruments coming out faster and quicker...especially since the bigger foreign banks decided not to sit by the sidelines anymore. But when it comes to trading the Gulf should have all the petrodollars. Besides rules can be recognised in one region but not in another and the islamic scholars in the two regions I guess will debate it out.While interest is prohibited, another philosopgy here is that the actual profit rate should not be determined and known, but rather left in a more risk sharing equity based - This is the context behind musyrakah. Murabaha instruments just restrict against riba. Interesting observations include in m;sia where there had been no fixed-rate housing loans. Market competition was such that hardly anyone offered it. Then came islamic finance in which the fixed rate loans was jsut about the best way to get around the interest payment component - suddenly there was a surge of islamic housing loans, which was really an fixed rate loan. So strangely enough islamic products led to a surge of market products that were actually different from what was being currently served in the market and which may never emerge for at least another few years.Islamic finance involves the transfer of asset ownership - tax implications !!BTW i don't think its a serious problem for a non-muslim to venture into it. I know lots of non-muslims trading Islamic bonds. BUt obviously does help if you are well versed in syariah.