Indifference valuation of non-performing loan-backed securities

This paper developed a unified framework for valuing non-performing loan (NPL)-backed securities under regime-switching macroeconomic conditions. The stochastic timing of NPL repayments were modeled by a Cox process with regime-dependent intensity, while investor risk aversion was incorporated through utility indifference pricing. Analytical solutions were obtained in a two-regime setting. Numerical results showed how risk aversion, repayment intensity, and macroeconomic state jointly affected the indifference price of NPL-backed securities.