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

Author/Editor:

Faezeh Raei ; Selim Cakir

Publication Date:

October 1, 2007

Electronic Access:

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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.

Series:

Working Paper No. 2007/237

Subject:

Bonds Interbank rates International bonds Securities Vector autoregression

English

Publication Date:

October 1, 2007

ISBN/ISSN:

9781451868012/1018-5941

Stock No:

WPIEA2007237

Pages:

20

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