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A discrete Markov chain model for valuing loan portfolios. The case of Mexican loan sales

Journal of Banking & Finance 1998 22(10-11), 1457-1480
A stochastic valuation model is developed to value a commercial and industrial loan portfolio related to the Mexican bank loan resolution process. Instead of trying to predict the winning bid outright, with this model we determine the underlying probability distribution of the prices offered in a competitive auction. Fairly narrow confidence intervals for the highest bid can be estimated which seem to improve as the number of bidders increases.