An Islamic Credit Default Swap on Smart-Contract Infrastructure: Design, Pricing, and Regulatory Pathway

Abstract

We introduce the first fully operational Islamic Credit Default Swap (iCDS) on public blockchain infrastructure, combining a closed-form riba-free pricing formula with a deployed smart contract on Arbitrum. Building on the κ-rate framework of Ackerer, Hugonnier & Jermann [1] and the credit-equivalence theorem of Ahmed, Bhuyan & Islam [3], the fair iCDS spread is s * = κ(1-δ) at ι = 0, where κ is the convergence intensity and δ is the recovery rate. Conventional CDS, discounted at the risk-free rate ι, prices at s conv = κ(1-δ) • ι/(κ+ι)