A Call on Art Investments
30 Pages Posted: 17 Nov 2008 Last revised: 20 Mar 2012
Date Written: January 15, 2011
The art market has seen a sustained growth over the last years, but participation has been reserved for just a few investors. The paper proposes to overcome this problem by introducing a call option on an art index which is 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, nontradability of the art index is acknowledged, and a fundamental PDE for the option value and its closed form solution are derived, if one assumes the underlying to be correlated with an existing asset. A lower bound for the option value is also given when no such correlated asset exists.
Keywords: Art Market, Art Index, Alternative Investments, Option Pricing
JEL Classification: G11, G13, Z11
Suggested Citation: Suggested Citation