How possible is producing very high voltage and electric arc by a using this simple setup
Your simulation is incomplete for practical components. A function generator is mentioned as a signal source (of unknown type)...these generally have an internal source resistance close to 50 ohms, not 1 ohm. This will limit the power available - however function generators often can supply 20 V peak-to-peak with no load. A square wave source will provide slightly more power than a sine wave.

A practical inductor will have both internal resistance, and capacitance. In addition, any wire or plate you attach to its "hot" end will add capacitance.
Nevertheless, your approach to generating higher AC voltage is OK: it is possible to boost amplitude to hundreds of volts from a standard type function generator.







simulate this circuit &ndash; Schematic created using CircuitLab
The values of the inductor's parasitic components are guesses, and depend very much on the actual inductor you have available. A wire attached will also radiate a little energy away, reducing voltage.
Since impedance is high, any sparks will be feeble. A function generator should be protected by its 50 ohm internal resistance if it is of sound design.