Art-Backed Lending: Implied Spreads and Art Risk Management

37 Pages Posted: 1 Apr 2008 Last revised: 23 Mar 2009

Rachel A.J. Pownall

Tilburg University - Department of Finance; Maastricht University - Department of Finance

Christian Wiehenkamp

affiliation not provided to SSRN

Date Written: March 20, 2009

Abstract

The increasing portion of individuals' wealth in art sets the stage for art-backed lending services. Considering widely used credit default swaps, the paper applies the structure to art-backed loans and develops an extensive pricing model for the derivatives contract, explicitly taking art market characteristics into account. Using a CDS pricing methodology sheds light on current lending spreads and provides a risk management tool for art-backed lending institutions. At the same time, an introduced art credit default swap would offer an ability to transfer the lender's risk with respect to the art price. The results suggest that credit risk accounts for at most 50% of current art-backed lending spreads.

Keywords: Art Market, Credit Default Swaps, Risk Management

JEL Classification: G13, G14, Z11

Suggested Citation

Pownall, Rachel A.J. and Wiehenkamp, Christian, Art-Backed Lending: Implied Spreads and Art Risk Management (March 20, 2009). Available at SSRN: https://ssrn.com/abstract=1114046 or http://dx.doi.org/10.2139/ssrn.1114046

Rachel Ann Jane Pownall

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Christian Wiehenkamp (Contact Author)

affiliation not provided to SSRN

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