Islamic Models for Investment versus the Capital Asset Pricing Model and the Black-Scholes Model: A KSCCN Learner Note on Dissonances, Theorisation and Deployment

Abstract

This note examines the differences between primary Islamic models of investment and two foundational instruments of modern finance: the Capital Asset Pricing Model (CAPM) and the Black-Scholes option-pricing model. It supplies detailed dissonance notes on points of structural conflict and detailed instrumental notes on how Islamic-aligned alternatives have been theorised and how they are deployed in practice. The aim is pedagogical clarity for learners in Islamic finance, portfolio theory and economic policy. Islamic investment models, in the primary sense used here, rest on risk-sharing (mudarabah, musharakah), asset-backing, the prohibition of riba, the restraint of excessive gharar and maysir, ethical screening of activities, and the obligations of Zakat and purification. CAPM prices assets relative to a risk-free rate and a market risk premium. Black-Scholes prices contingent claims under continuous no-arbitrage hedging that relies on a risk-free rate and geometric Brownian motion. The note treats pure models as benchmarks; observed practice is hybrid. KSCCN learner note (KSCCN-LN-INV-CAPM-BS-2026-10), Series on Critical AI, Digital Sovereignty and Economic Diplomacy, 11 October 2026. Dr. Syed Muntasir Mamun, ORCID 0000-0001-6845-2853. The views expressed are those of the author.