The purpose of this paper is to perform Shariah review of Brownian motion that is used for prediction of Islamic stock prices and their volatility.
It uses the Shariah compliant development model guidelines to review the Brownian motion and its applications.
The model of Brownian motion does not involve any variable that renders it non-Shariah compliant; neither all applications of Brownian motion are Shariah compliant. Because the model is based on stochastic properties that involve randomness, therefore the issue of gharar takes the utmost important to handle in the applications of the model. The results need to be analyzed strictly in accordance with the Shariah whether they create any element of gharar or uncertainty in case of expected price and volatility estimates.
The research suffers from the limitation that it analyses only one model of physics, i.e. Brownian motion model from Shariah perspective.
The research opens an area for Shariah analysis of results generated from the application of advanced models of physics on matters related to Islamic financial markets.
The originality of this study stems from the fact that to the best of the authors’ knowledge, it is the first study that extends Shariah guidelines into Financial physics for making the foundations of Islamic econophysics.
