Derivatives

Contingent Premium Floor

January 31, 2022
Islamic Finance

Zakat al-Mutarabbis

January 31, 2022

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The premium (price) of an option contract whose payment is deferred to expiration and is contingent on the option expiring in the money. No premium is paid if the option expires worthless, i.e., is at the money or out of the money at expiration. Everything else being equal, the contingent premium usually exceeds an ordinary premium. Options with contingent premium are essentially European-style.

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