37 Pages Posted: 1 Apr 2008 Last revised: 23 Mar 2009
Date Written: March 20, 2009
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: 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