A call on art investments

The art market has seen boom and bust during the last years and, despite the downturn, has received more attention from investors given the low interest environment following the financial crisis. However, participation 
The art market has seen boom and bust during the last years and, despite the downturn, has received more attention from investors given the low interest environment following the financial crisis. However, participation has been reserved for a few investors and the hedging of exposures remains dificult. This paper proposes to overcome these problems by introducing a call option on an art index, derived from one of the most comprehensive data sets of art market transactions. The option allows investors to optimize their exposure to art. For pricing purposes, non-tradability of the art index is acknowledged and option prices are derived in an equilibrium setting as well as by replication arguments. In the former, option prices depend on the attractiveness of gaining exposure to a previously non-traded risk. This setting further overcomes the problem of art market exposures being dificult to hedge. Results in the replication case are primarily driven by the ability to reduce residual hedging risk. Even if this is not entirely possible, the replication approach serves as pricing benchmark for investors who are significantly exposed to art and try to hedge their art exposure by selling a derivative. JEL Classification: G11, G13, Z11 Keywords: Art Market, Art Index, Alternative Investments, Option Pricing.
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Metadaten
Author:Roman Kraeussl, Christian Wiehenkamp
URN:urn:nbn:de:hebis:30-75143
Series (Serial Number):CFS working paper series (2010, 03)
Document Type:Working Paper
Language:English
Date of Publication (online):2010/02/25
Year of first Publication:2010
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2010/02/25
Tag:Alternative Investments ; Art Index ; Art Market ; Option Pricing
HeBIS PPN:221633634
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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