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Are NPL-backed securities an investment opportunity?

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  • Bolognesi, Enrica
  • Stucchi, Patrizia
  • Miani, Stefano

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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  • Bolognesi, Enrica & Stucchi, Patrizia & Miani, Stefano, 2020. "Are NPL-backed securities an investment opportunity?," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 327-339.
    • Handle: RePEc:eee:quaeco:v:77:y:2020:i:c:p:327-339
    DOI: 10.1016/j.qref.2019.10.007
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