Journal of Applied Economic Sciences Volume XI, Issue3 (41), 2016 Pricing Bounded Value Based Salam DCHIECHE Amina Laboratoire d'étude et de recherche en Mathématiques appliquées, Islamic financial engineering Laboratory Mohammadia School of Engineering, Mohammed V University Avenue Ibn Sina Rabat Morocco amina.dchieche@gmail.com ABOULAICH Rajae Laboratoire d'étude et de recherche en Mathématiques appliquées, Islamic financial engineering Laboratory Mohammadia School of Engineering, Mohammed V University Avenue Ibn Sina Rabat Morocco aboulaich@emi.ac.ma Abstract: Salam is a contract in which advance payment is made for goods to be delivered at a future date. The main disadvantage of this contract is the variation of good's price at maturity. To resolve this issue we use classically the Value-based Salam where the value of the good is defined as quantity time unit price. This solution permits the hedge the buyer and the seller against fluctuations in price's good but the quantity to be received at maturity can undergo unlimited changes. In this work we propose a new approach to model Value-based Salam where the quantity to be received is Bounded and known. Keywords: Islamic Finance, Derivatives, risks, hedging, Salam, Value-based Salamke JEL Classification: G12, C5, C6, C87 1. Introduction Risk in finance is associated with financing, including financial transactions that include company loans in risk of default. Risk is a term often used to imply downside risk, meaning the uncertainty of a return and the potential for financial loss. It is not desirable as such. In Islamic finance the risk is more indesirable since it can be considered as ``Gharar'' meaning uncertainty which is banned by the Shariah 1 . To resolve this issue we have to consider the main principle of Islamic in order to model new or existing financial contracts for hedging (Aboulaich, Dchieche 2015) and (Aboulaich, Dchieche 2016), or to use engineering in order to improve Islamic existing contracts (Dchieche, Aboulaich 2016). In this work we propose to improve Salam contract especially the Value-based case to obtain a bounded Value- based Salam where the quantity to be received at maturity is bordered and the loss of the buyer and the seller is limited and known. According to figure1(Al-Suwailem 2011) an Islamic contract to be acceptable must respect the principles of Consistency. Substance means the outcome of the product, for example the outcome of tawarruq 2 is money for money, this is not acceptable. For Mourabaha 3 the outcome is money for a good. This is an acceptable substance or outcome. Therefore we move to the next step: is the form acceptable? We need to be sure that the buyer owns the good and is liable for it. 1 Islamic law. 2 Tawarruq is a financial instrument in which a buyer purchases a commodity from a seller on a deferred payment basis, and the buyer sells the same commodity to a third party on a spot payment basis meaning that payment is made on the spot. 3 Sale on profit. Technically a contract of sale in which the seller declares his cost and profit.