KOMA classes and \LoadClass

The option paper is actually not a class option, but an option of the typearea package which is implicitly used by all KOMA-Script classes. Hence, what you need is the following:

\ProvidesClass{myclass}[2011/08/31]
\PassOptionsToPackage{paper=a5}{typearea}
\LoadClass{scrartcl}

The paper option isn't automatically passed to the typearea package by the KOMA-Script classes. On the other hand, this is the case for the old-style a4paper, a5paper etc. options. Thus, an alternative solution to your problem is:

\ProvidesClass{myclass}[2011/08/31]
\LoadClass[a5paper]{scrartcl}

I don't recommend the latter solution, though, since old-style options are more and more deprecated by the KOMA-Script classes.