1. Introduction

In the field of contemporary investment, art is gradually favored by investors as a unique asset class. Art provides investors with different hedging opportunities from traditional investment categories because of its unique anti-inflation, low relevance, and cultural and aesthetic values. With the growth of global wealth and the improvement of collection awareness, the art market has gradually expanded, and the value and trading volume of art is on the rise. However, although the potential of art investment is gradually recognized, there is still a gap in the market's research on art derivatives, especially in how to provide market access to a wider group of investors through art derivatives. This article aims to explore the feasibility and potential of art-qualified derivatives as a new investment channel. This paper pays special attention to how art derivatives allow investors to participate in the high-end art market with a low capital threshold, achieve wealth growth, and improve the overall stability of the portfolio through the low relevance of the art market. This study will explore the design, operation, and market acceptance of art derivatives by analyzing the transaction records of the art market, auction data, and the insights of art valuation experts. The significance of this study is that through the systematic analysis of art derivatives, it supports the development and cultural dissemination of the art market, and provides investors with a new way to reduce investment risks and increase wealth appreciation opportunities. In addition, this paper will also explore the main challenges faced by art derivatives, such as low market liquidity, the subjectivity of art valuation, asymmetry of market information, and imperfect legal and regulatory frameworks, and propose possible solutions to these challenges.

Art's high value-added potential and anti-inflation characteristics are supported by the growing global wealth and increased collection awareness, leading to an expanding art market with rising value and transaction volume. Issuing qualified art derivatives allows investors to access this high-end market through a smaller capital threshold, promoting wealth growth [1] . Additionally, art derivatives offer opportunities for diversification. The low correlation between the art market and traditional financial markets means that including art in a portfolio can effectively reduce overall investment risk and enhance portfolio stability [2]. Furthermore, through the management of a professional team, art-qualified derivatives offer a way to avoid individual investment risks, such as forgery or maintenance issues, while also providing a mechanism to appreciate the value of artworks through professional market analysis [3]. Finally, the issuance and operation of art derivatives can promote the development of the art market and the dissemination of art culture, thereby increasing public awareness and interest in art, and further enhancing the market's prosperity [4].

2. Potential Purchasers

High Net Worth Individuals: These investors are always on the lookout for unique opportunities to diversify their portfolios and mitigate risks while seeking avenues for capital appreciation. Art derivatives, in this context, offer an attractive proposition. They allow entry into the prestigious art market without the direct challenges of acquisition, storage, and maintenance, simultaneously offering the allure of capital gains tied to the appreciating value of art pieces.

Family Offices: Tasked with safeguarding and growing a family's wealth across generations, family offices often pursue investments that offer stable growth with minimal correlation to the volatile movements of traditional markets. Art-qualified derivatives serve as an appealing alternative, aligning with their strategic investment objectives by tapping into the stability and potential growth of the art market [5].

Pension Funds and Foundations: With a mandate to ensure long-term, stable returns to meet future financial obligations, these institutional investors find art-qualified derivatives a compelling addition to their portfolios. These products diversify income sources beyond the conventional realms of stocks and bonds, potentially offering a hedge against market downturns and inflationary pressures [6,7].

Investment Funds: Entities that specialize in alternative investments—including hedge funds, private equity, and dedicated art investment funds—recognize the value of incorporating qualified art derivatives into their strategies. These instruments present a pathway to diversification and growth through investment channels uncorrelated with traditional financial markets, enabling a more robust risk management framework.

3. Potential Sellers

Artists and Artist Heritage Administrators: By engaging with art derivatives, artists and those managing legacy collections can unlock new revenue streams. This not only enhances market exposure for their works but also introduces innovative financial models into the art ecosystem, potentially stabilizing income streams and funding future projects.

Art Galleries and Distributors: These market participants play a crucial role in bridging artists with collectors. By involving themselves in the art derivatives market, galleries and distributors can provide financial backing and market access for the artists and artworks they represent, thereby attracting a broader investor audience and enhancing the liquidity of art as an asset class [8].

Museums and Art Foundations: Through the issuance of art derivatives, museums, and foundations can secure additional funding to support operational needs and exhibition projects. This strategy can also elevate the visibility of their collections, encouraging public engagement and participation, while ensuring the sustainability of their cultural missions.

Investment Funds and Financial Institutions: For those already holding art assets, art derivatives offer a mechanism to liquefy a portion of their holdings without divesting entirely. This approach provides their investors with diversified investment products that tap into the value and appreciation potential of the art market, enriching their overall investment portfolio [9].

4. Release Location

When launching qualified art derivatives, selecting prestigious art centers or galleries as release locations is a strategic decision that can significantly impact their market reception and success. Places like the Chelsea Art District in New York, Mayfair in London, or Le Marais in Paris are not just geographical locations; they are cultural epicentres renowned for their vibrant art scenes, rich history in art trading, and status as hubs for collectors and art enthusiasts alike. These locales offer an intrinsic value beyond mere physical space—they are symbolic, carrying a reputation that can lend credibility and allure to the derivatives being introduced.

Chelsea Art District, New York: Known for its high concentration of contemporary art galleries, Chelsea acts as a magnet for art lovers and collectors from around the globe. Hosting a release event here can capitalize on the district's foot traffic and its regular hosting of high-profile art events and openings, ensuring visibility among key demographics.

Mayfair, London: Mayfair's galleries are synonymous with luxury and exclusivity, often showcasing works from some of the most prestigious and well-established artists. The area's reputation for high-end art dealings makes it an ideal location for attracting investors looking for premium investment opportunities in the art world.

Le Marais, Paris: With its historic architecture and deep artistic roots, Le Marais provides a charming and culturally rich backdrop for the release of art derivatives. The district is known for its eclectic mix of galleries, ranging from classic to contemporary, making it a fitting choice for appealing to a broad spectrum of potential investors.

Selecting such distinguished locations for the release of art derivatives not only enhances the appeal of the investment products but also aligns them with the prestige and exclusivity often associated with art. Moreover, by situating the launch in areas that are already focal points for art trading and exhibitions, sponsors can leverage existing infrastructure and networks, facilitating engagement with the target audience. Furthermore, these art centres and galleries provide the perfect for presenting art derivatives, allowing potential investors to experience the cultural and aesthetic value of the artworks behind the financial instruments. This immersive experience can foster a deeper appreciation and understanding of the art market, enhancing the perceived value of the derivatives.

5. Design

Qualified derivative products of art are based on modern artworks and reflect market price changes through the art price index. This index accounts for auction records and artist visibility to ensure data accuracy. The product uses cash settlement, simplifies the investment process, and allows investors to earn gains or bear losses based on the index's performance. Pricing standards integrate the art market's supply and demand, major events, and macroeconomic impacts, aiming to provide a new investment channel through the art market. It leverages the non-relevance and anti-inflation characteristics of artworks to reduce investment risks, enhance market transparency and transaction convenience, and promote the development of the art market and cultural communication [10].

6. Boundedness

Although qualified art derivatives offer a novel investment channel, their design and operation face many challenges. The low liquidity of the art market, relative to the traditional financial market, may hinder derivatives trading and rapid execution, affecting investment flexibility. Art valuation is influenced by various subjective factors, and coupled with information asymmetry in the art market, it increases the complexity and risk of investment. Moreover, the art market's legal and regulatory framework is imperfect, with regulatory uncertainty and legal issues of cross-jurisdictional transactions presenting additional challenges. Lastly, as alternative investments, qualified art derivatives may have limited acceptance among traditional investors. These limiting factors must be fully considered in the product design and promotion process to ensure their successful implementation and long-term development [10].

7. Conclusion

This article delved into the burgeoning realm of art derivatives, highlighting them as an innovative investment avenue distinct from conventional options like stocks and bonds. Art derivatives stand out because they offer resilience against economic downturns, presenting a unique opportunity to invest in a sector historically perceived as stable in value. This exploration has unveiled a growing interest among diverse investor groups, including affluent individuals, family offices, and institutional investors such as pension funds. They are drawn to the distinct diversification benefits and potential for value preservation and growth that art derivatives can offer. However, venturing into the art derivatives market is not without its challenges. The complexity of accurately valuing art, combined with the novelty of the investment form, poses potential hurdles. The art market's intricacies and the need for more familiarity among traditional investors with this new investment form can make navigation daunting. Despite these obstacles, the concept of art derivatives is gaining traction, promising to democratize access to the art investment space and potentially redefine investment paradigms within the art sector. In summary, this article introduces art derivatives as a novel, more accessible route to art investment, aiming to broaden participation in the art market and speculate on its implications for future investment landscapes. It underscores the potential of art derivatives to open up the art world to a wider audience, fostering a new appreciation and understanding of art as a viable investment option. Through art derivatives, the art market may not only become more accessible but also see a transformation in how art is valued and traded as an investment, signaling a significant shift in the intersection of art, culture, and finance.