The purpose of this thesis is to examine the valuation of Asset-Backed Securities(ABS) based on Non-Performing Loans(NPL) by comparing the cash flow from the underlying assets and the ABS. The Jarrow & Turnbull model was used to obtain the price of the NPL ABS, which was discounted with a binomial spot interst rate developed by Black, Derman and Toy.
The results of the empirical analysis show that in case of a bond with a high credit grade, pricing by using the Jarrow & Turnbull model is almost perfect for explaining the issuing price of the bond based on the non-performing loans. However, in case of a bond with a low credit grade, the Jarrow & Turnbull model is not suitable for explaining the issuing price.
