Study of the Economic Nature of the Barrier Options and Its Jurisprudential Analysis

The purpose of this study is to investigate the economic and jurisprudential nature of barrier Option. Options are a type of derivative instrument in the financial markets that gives a person the right to buy or sell an asset without obligation. This tool is used along with other types of derivative tools to cover risk and speculation. Two kindes of barrier option are the Knock-In and Knock-out Barrier Options and includes the agreement under which either the buyer or the seller may activate or deactivate their right to buy or sell under the terms agreed upon by the parties. This research answers the question of whether such a contract is legitimate from a jurisprudential point of view. While examining the economic nature of this type of authority, using the traditional ijtihad method in the jurisprudential analysis of Islamic financial instruments, the nature of the barriers option has been examined through various contracts such as sale of rights, peace, initial condition and other types of contracts. The results indicate that the Knock-In barrier option is valid through the sale of the right due to the right it gives to the buyer to activate his right to purchase in the conditions agreed upon by the parties, but the Knock-out barrier option is not valid because it contains a condition contrary to the initial contrct, and needs to be amended through a peace treaty or a initial condition.