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Scott Clearwater and Bernardo A. Huberman
Information Dynamics Laboratory, HP Labs


Since usage patterns of information technology within organizations can be bursty, the peak demand for IT resources can at times exceed the installed capacity within the enterprise. If providers of such peak capacity emerge, as was the case for electricity and natural gas, the problem arises as to how to efficiently provide and price such peak demand.

We present a swing option mechanism that allows for the efficient pricing of IT resources ranging from CPU usage to storage and bandwidth. This mechanism allows users to buy the right but not the obligation to future peak use. A statistical simulation tool allows the users to price these swings according to their own utilization patterns and to recover some of their costs if the options are not exercised. The provider in turn exploits its ability to statistically multiplex its resources to price peak usage. The use of these swing options serves as an incentive to the users to accurately forecasts of their own needs, thus leading to more efficient utilization of the provider’s resources.

To be presented at the 11th International Conference on Computing in Economics, June 23 2005,

Full paper in PDF format

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