The 
Bad Blood starts at 
Bozhena's Hut. Bozhena tells you that her daughter Pavlena is missing. If you resolve the quest well, Pavlena becomes a useful herb and recipe merchant.
Investigate Pavlena's Room
Search Pavlena's room in Bozhena's hut. Interact with the pillow, dress, basket, and the man's hat on a wooden stool near the staircase. You do not need to unlock the chest since it contains nothing related to the quest.
After examining the items, you can speak to Bozhena for additional dialogue. The evidence suggests that Pavlena's disappearance is suspicious, so the investigation continues in Troskowitz.
Investigating in Troskowitz
Start by asking Tailor Bartoshek. He will sarcastically send you to the bailiff. The Bailiff of Troskowitz or Scribe Gaibl directs you to the woodcutter Dushko in a nearby house.
Dushko eventually tells you to search for Roman. Break into Roman's house, then return to Dushko to continue the investigation. He will send you towards the forest in the south - follow the marker.
Roman's Body & Hog Handler
Investigate the 
Lovers' Spot interesting site and follow the blood trail. You will find Roman dead, half buried and partly eaten by a wild boar. This situation could not be more comical.
Speak with a nearby hog handler for more information. The trail eventually leads to a villager named Slama, who reveals Pavlena's location.
You can decide Slama's punishment. Bringing him to the bailiff does not provide rewards like in the first game but it is a safe and recommended option for a good ending - killing him can have negative consequences later.
Whatever you decide, he reveals that Pavlena has been taken to the rocks south of Troskowitz.
Rescuing Pavlena & Negotiation
Head to the forest camp north of the Wine Wagon interesting site. The camp is hidden in the rocks - start at the main road and then go left along the rocks until you reach a ladder. Ignore the dog, just climb up the ladder quickly.
There you meet Ota, who is holding Pavlena hostage. This conversation can easily fail and lead to her death.
Choose the first dialogue option with your name. Lie that nobody has sent you. Do not remind him of anything and end the negotiation quickly. Promise that he can walk away.
Ota releases Pavlena and she immediately kills him in anger. To our knowledge it is not possible for him to stay alive.
Ending the Conflict
Return to Bozhena's hut. Bozhena asks you to kill Jakesh to end the conflict.
You can achieve a better outcome by negotiating instead.
Meet Jakesh at the tavern in Troskowitz and pass the dialogue skill check. He agrees to end the feud and gives compensation for Bozhena.
When you return with the money, Bozhena offers you half and the quest ends peacefully.
Rewards
The best reward is unlocking Pavlena as a merchant and teacher. She sells herbs and is one of the best sources of potion recipes in the game.
Pavlena's Shop Inventory
Note that merchants refresh their inventory every few days.
Bad Blood Quest FAQ
Where do I start the Bad Blood quest?
The Bad Blood starts at Bozhena's Hut. Bozhena tells you that her daughter Pavlena is missing.
Where is Pavlena in the Bad Blood quest?
Pavlena has been taken to the rocks south of Troskowitz. Head to the forest camp north of the Wine Wagon interesting site. The camp is hidden in the rocks - start at the main road and go left along the rocks until you reach a ladder.
How do I save Pavlena when negotiating with Ota?
Choose the first dialogue option with your name, lie that nobody has sent you, do not remind him of anything, end the negotiation quickly, and promise that he can walk away. Ota releases Pavlena.
Should I kill Jakesh or negotiate in Bad Blood?
You can achieve a better outcome by negotiating. Meet Jakesh at the tavern in Troskowitz and pass the dialogue skill check. He agrees to end the feud and gives compensation for Bozhena.
What is the best reward from the Bad Blood quest?
The best reward is unlocking Pavlena as a merchant and teacher. She sells herbs and is one of the best sources of potion recipes in the game.