This paper focuses on the risk-return profile of the asset-backed securities deriving from the securitization of non-performing loans (NPLs). We test several hypotheses concerning the portfolio sell price, tranche note size and use of a public guarantee supporting the senior notes. We observe the return distribution of junior notes as a function of the portfolio recovery rate, assuming a lognormal distribution. Moreover, we focus on the probability of achieving selected target returns using a value-at-risk approach. Our results provide evidence that securitization is the most valuable deleveraging strategy from the perspective of both investors and banks.

Are NPL-backed securities an investment opportunity?

Bolognesi E.
Primo
;
Stucchi P.
Secondo
;
Miani S.
Ultimo
2019-01-01

Abstract

This paper focuses on the risk-return profile of the asset-backed securities deriving from the securitization of non-performing loans (NPLs). We test several hypotheses concerning the portfolio sell price, tranche note size and use of a public guarantee supporting the senior notes. We observe the return distribution of junior notes as a function of the portfolio recovery rate, assuming a lognormal distribution. Moreover, we focus on the probability of achieving selected target returns using a value-at-risk approach. Our results provide evidence that securitization is the most valuable deleveraging strategy from the perspective of both investors and banks.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11390/1173710
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