Valuation of Auction Guarantees in the Art Market

29 Pages Posted: 26 Feb 2020

See all articles by Ventura Charlin

Ventura Charlin

V. C. Consultants; EVENTUS ANALYTICS

Arturo Cifuentes

CLAPES--UC

Date Written: January 28, 2019

Abstract

We analyze the guarantees that art-auction houses offer from an options viewpoint. This approach allows us to derive analytical expressions to value the positions involved in such arrangements. We further validate these formulas with a Monte Carlo simulation applied to a realistic example. Finally, we show that the risk associated with such guarantees is lower than what is commonly believed by market practitioners, we also expose the dangers of relying on the Black-Scholes model to value such guarantees, and we introduce a simple risk-reward metric that has intuitive appeal.

Keywords: Art Derivatives, Auction Guarantees, Normally Distributed Asset Prices, Risk Management, Financial Risk, Options Valuation

JEL Classification: C02, G1, G13, Z11

Suggested Citation

Charlin, Ventura and Cifuentes, Arturo, Valuation of Auction Guarantees in the Art Market (January 28, 2019). Available at SSRN: https://ssrn.com/abstract=3324297 or http://dx.doi.org/10.2139/ssrn.3324297

Ventura Charlin (Contact Author)

V. C. Consultants ( email )

Avda. Los Leones 1300
Suite 1202
Santiago, RM 7510477
Chile
227897447 (Phone)

EVENTUS ANALYTICS ( email )

230 E 73rd Street
New York, NY New York 10021
United States

Arturo Cifuentes

CLAPES--UC ( email )

Av Libertador General Bernardo O'Higgins 340
Santiago, Región Metropolitana 8331150
Chile

HOME PAGE: http://https://arturocifuentes.com/

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