Foundations of Islamic Finance series
Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad
Chapter 10: Need for pricing information to value sukuk securities
Information is needed for accurate calibration of the values of cash flows that come from Islamic sukuk contracts traded in public markets. This is the focus of this chapter. In the absence of structured valuation models, current industry advice is based on what investors are willing to pay for a given sukuk security as traded, for example, in the Malaysian fixed-income securities market. There is an absence of models specifically derived to account for the several different characteristics of the six different sukuk contracts that are traded in Malaysia. Unlike this situation, conventional bonds that are traded in the same market as fixed-income securities have special valuation models that are used as independent means to estimate a theoretical value. For investment advisory practice in the industry, such prices are very close to the long-term tendency of conventional bond prices. The pricing advisory firm–Bond Pricing Agency Malaysia (BPAM)–is unable to base its advice to sukuk investors in the more objective ways that the advice is framed using both market and valuation prices to advise conventional bond clients. This is the subject of our discussion in this chapter.
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