Indifference valuation of non-performing loan-backed securities

Wanrong Mu; Congjin Zhou; Wanrong Mu; Congjin Zhou

doi:10.3934/math.20251039

AIMS Mathematics

2025, Volume 10, Issue 10: 23394-23410. doi: 10.3934/math.20251039

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Indifference valuation of non-performing loan-backed securities

Wanrong Mu ¹,
Congjin Zhou ^{2
,
,}

1.
School of Mathematics and Finance, Chuzhou University, Chuzhou, 239000, China
2.
School of Mathematical Sciences, Suzhou University of Science and Technology, Suzhou, 215006, China

Received: 15 August 2025 Revised: 20 September 2025 Accepted: 09 October 2025 Published: 15 October 2025
MSC : 91A15, 91G30

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.
- non-performing loans,
- indifference pricing,
- regime-switching,
- Cox process,
- exponential utility
Citation: Wanrong Mu, Congjin Zhou. Indifference valuation of non-performing loan-backed securities[J]. AIMS Mathematics, 2025, 10(10): 23394-23410. doi: 10.3934/math.20251039

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Abstract

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.

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