Pricing of Waad Bil Mourabaha

Authors

  • Rajae Aboulaich Islamic Finance Engineering Laboratory Mohammadia School of Engineering, Mohammed V University Rabat Morocco
  • Amina Dchieche

Keywords:

Islamic Finance, Shariah Compliance, Derivatives, Call Op- tion, Black and Scholes Model, risks, hedging

Abstract

Conventional contracts are limited in the point of view of ethics [5].To meet the need of increasing nancial market, we use engineeringwhile respecting the principles of the Islamic Shariah1, which containsthe golden rules of ethics.In this article we will model an alternative to the derivatives: especiallythe Call Option using the Waad. Waad is a promise of sale or pur-chase of goods, declared in a unilateral way. In spite of the unusualuse of the Waad's contract because of the disagreement between someschools of islamic law, this contract allows us to propose sophisticatedand interesting contract: Waad Bil Mourabaha.Mourabaha is a Kind of sale where the seller expressly mentions thecost he has incurred on goods for sale and sells it to another person byadding some prot or mark-up thereon which is known to the buyer.Waad Bil Mourabaha's contract provides the right to buy goods ata future date with a contract Mourabaha, but we can't sell this con-tract. Waad Bil Mourabaha can also be used to limit the risk; inthis paper we will study the possibility of Islamic hedging.For the pricing of this contract, we will use the Black and Scholes modeland the approach proposed by A.Jobst[6], according to S.Oumrana,R.Aboulaich[10] and S.Bouarfaoui[3] we will propose a new approachusing a dynamic return rate of goods.

References

Al-Suwailem Sami (2006), Hedging in Islamic Finance occasional paper n10.

Al-Suwailem Sami (2011), Islamic approach to risk, Adopted from sections 4 and 5 of the author's paper: Hedging in Islamic Finance, IRTI.

Bouarfaoui Said(2013), Produits Alternatifs: Modelisation d'une Option EMI, Universite Mohammed V-Agdal, Rabat, Maroc.

Clement Sebastien(2009), Derivatives and Islamic Finance, Les Cahiers de Finance Islamique N2 Ecole de management de Strasbourg.

Gueranger François(2009), Finance islamique: Une illustration de la finance ethique Edition Dunod.

Jobst Andreas (2007), The Economics of Islamic Finance and Securitization IMF Working Paper Monetary and Capital Markets Department, Authorized for distribution by Ceyla Pazarbasioglu.

Klein Paul-Olivier(2014), Charia et instruments optionnels la perspective du Fiqh quant aux options d'achat et de vente Cahiers de Finance Islamique N6 Ecole de management de Strasbourg.

Lars Tyge Nielsen(1992), Understanding N(d1) and N(d2): Risk-Adjusted Probabilities in the Black-Scholes Model " INSEAD.

Mushtaq Ahmad Qazi (2012), The Binding Nature of Waad (Promise) and Its Application in Islamic Finance .

Omrana Siham and Aboulaich Rajae (2013), Bai Al Arboun a Shariah compliant alternative to conventional Call Options Int. Research Journal of Finance and Economics, Issue 115, Oct.

Siti Salwani Razali (2008), The concept of waad in Islamic Financial contract Dept Business Admin, Kulliyyah of Econs and Mgmt Sciences IIUM.

Verraux Alexane(2008), Resolution de l'equation black and Scholes Tampere university of technology.

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Published

2015-07-06

How to Cite

Aboulaich, R., & Dchieche, A. (2015). Pricing of Waad Bil Mourabaha. Asian Journal of Applied Sciences, 3(3). Retrieved from https://www.ajouronline.com/index.php/AJAS/article/view/2685

Issue

Vol. 3 No. 3 (2015): June 2015

Section

Articles

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