Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk?

22 Pages Posted: 25 Jan 2008

See all articles by Selim Cakir

Selim Cakir

International Monetary Fund (IMF)

Faezeh Raei

International Monetary Fund (IMF)

Date Written: October 2007

Abstract

This paper assesses the impact of bonds issued according to Islamic principles (Sukuk), on the cost and risk structure of investment portfolios by using the Value-at-Risk (VaR) framework. The market for Sukuk has grown tremendously in recent years at about 45 percent a year. Sukuk provide sovereign governments and corporations with access to the huge and growing Islamic liquidity pool, in addition to the conventional investor base. The paper analyzes whether secondary market behavior of Eurobonds and Sukuk issued by the same issuer are significantly different to provide gains from diversification. The analysis, employing the delta-normal as well as Monte-Carlo simulation methods, implies such gains are present and in certain cases very significant.

Keywords: Working Paper, Islamic banking, Bonds, Eurobond market, Investment

Suggested Citation

Cakir, Selim and Raei, Faezeh, Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk? (October 2007). IMF Working Paper No. 07/237, Available at SSRN: https://ssrn.com/abstract=1087156

Selim Cakir (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Faezeh Raei

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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