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A call on Art investments


  • Kraeussl, Roman
  • Wiehenkamp, Christian


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.

Suggested Citation

  • Kraeussl, Roman & Wiehenkamp, Christian, 2010. "A call on Art investments," CFS Working Paper Series 2010/03, Center for Financial Studies (CFS).
  • Handle: RePEc:zbw:cfswop:201003

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    References listed on IDEAS

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    13. Merton, Robert C., 1977. "On the pricing of contingent claims and the Modigliani-Miller theorem," Journal of Financial Economics, Elsevier, vol. 5(2), pages 241-249, November.
    14. Douglas Hodgson & Keith Vorkink, 2004. "Asset pricing theory and the valuation of Canadian paintings," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 629-655, August.
    15. Helen Higgs & Andrew Worthington, 2005. "Financial Returns and Price Determinants in the Australian Art Market, 1973-2003," The Economic Record, The Economic Society of Australia, vol. 81(253), pages 113-123, June.
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    Cited by:

    1. Kräussl, Roman & Lehnert, Thorsten & Martelin, Nicolas, 2016. "Is there a bubble in the art market?," Journal of Empirical Finance, Elsevier, vol. 35(C), pages 99-109.
    2. Dorota Witkowska, 2014. "An Application of Hedonic Regression to Evaluate Prices of Polish Paintings," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 20(3), pages 281-293, August.
    3. repec:kap:iaecre:v:20:y:2014:i:3:p:281-293 is not listed on IDEAS

    More about this item


    Art Market; Art Index; Alternative Investments; Option Pricing;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Z11 - Other Special Topics - - Cultural Economics - - - Economics of the Arts and Literature


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