Valuation Methods for Islamic Debt Instruments

9 mins read time Three methodologies are presented below for valuation of floating rate notes, term finance certificates, sukkuks and corproates each with a simple numerical example. These are:

Pricing using the bond pricing model which assumes that the outstanding principal will be redeemed with the coupon payment and scheduled redemption immediately prior to the following reset date.
Pricing using the forward pricing model which calculates the future floating rate coupons based on a derived forward rate curve.