Spot and Derivative Markets in Admission Control (1999) [13 citations — 4 self]
Abstract:
We propose a new approach to pricing of capacity in service systems with blocking, using spot and derivative market mechanisms. A second-price auction among arrivals grouped in batches gives rise to the spot market of usage charges. A reservation guaranteeing access for an arbitrary duration with a usage price below the bid can be made at any time before or during service, thus eliminating the risk { inherent to the spot market { of being dropped before service completion. We de ne the reservation as a hold option, which is analogous to derivative nancial instruments (e.g. options, futures) integrated over time. Based on a heavy-tra c di usion model for the corresponding two-stage queueing system, we compute the reservation fee as the fair market price of a hold option. We validate this approach with simulations driven by a real tra c trace at a dial-up Internet access modem-pool.
