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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