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Sukuk vs. Eurobonds; Is there a Difference in Value-At-Risk?

  • Faezeh Raei
  • Selim Cakir
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    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.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/237.

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    Length: 20
    Date of creation: 01 Oct 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/237
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    1. Michael T. Gapen & Dale F. Gray & Cheng Hoon Lim & Yingbin Xiao, 2005. "Measuring and Analyzing Sovereign Risk with Contingent Claims," IMF Working Papers 05/155, International Monetary Fund.
    2. de Vries, Casper G & Hartmann, Philipp & Straetmans, Stefan, 2001. "Asset Market Linkages in Crisis Periods," CEPR Discussion Papers 2916, C.E.P.R. Discussion Papers.
    3. Haque, Nadeem ul & Mirakhor, Abbas, 1999. "The Design of Instruments For Government Finance in An Islamic Economy," MPRA Paper 56028, University Library of Munich, Germany.
    4. Mirakhor, Abbas, 2007. "Islamic Finance and Globalization: A Convergence?," MPRA Paper 56026, University Library of Munich, Germany.
    5. Choudhry, Nurun N. & Mirakhor, Abbas, 1997. "Indirect Instruments Of Monetary Control In An Islamic Financial System," Journal of Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 4, pages 28-65.
    6. Khan, Mohsin S & Mirakhor, Abbas, 1990. "Islamic Banking: Experiences in the Islamic Republic of Iran and in Pakistan," Economic Development and Cultural Change, University of Chicago Press, vol. 38(2), pages 353-75, January.
    7. Ul Haque, Nadeem & Mirakhor, Abbas, 1999. "The Design Of Instruments For Government Finance In An Islamic Economy," Journal of Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 6, pages 27-43.
    8. Mirakhor, Abbas & Zaidi, Iqbal, 1988. "Stabilization and Growth in an Open Islamic Economy," MPRA Paper 56003, University Library of Munich, Germany.
    9. Abbas Mirakhor & Mohsin S. Khan, 1991. "Islamic Banking," IMF Working Papers 91/88, International Monetary Fund.
    10. El-Hawary & Dahlia & Grais, Wafik & Iqbal, Zamir, 2004. "Regulating islamic financial institutions : The nature of the regulated," Policy Research Working Paper Series 3227, The World Bank.
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