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

October 1, 2007

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Faezeh Raei, and Selim Cakir. Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk?, (USA: International Monetary Fund, 2007) accessed March 12, 2025

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Bonds, Interbank rates, International bonds, Securities, Vector autoregression

Keywords: Bond, Bond portfolio simulation, Portfolio, Return, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/237
Stock No:

WPIEA2007237
ISBN:

9781451868012
ISSN:

1018-5941

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