An Economic Model for Utilizing Cloud Computing Resources via Pricing Elasticity of Demand and Supply

Abstract

In this study, we elaborate two economic variables which have direct impact on prospective aspects of trading like Cloud resource allocation over future demands. These variables are Pricing Elasticity of Demand (PEoD) and Pricing Elasticity of Provisioning (PEoP). To leverage the pricing elasticity of upcoming demand and supply, we employ financial option theory as a method to alleviate the risk in resource provisioning over future demands. Our approach finds the optimal option price of the federated resource in the Cloud to come to an equilibrium between PEoD and PEoP. The asset equilibrium price occurs when the supply resource pool matches the aggregate demand indicating an optimal resource utilization. This study proposes a novel Cloud Asset Pricing Tree (CAPT) model that finds the optimal premium price of the Cloud federation options efficiently. The CAPT enables cloud service providers to make proper decisions when to trade options in advance and when to exercise them to achieve more economies of scale. Our empirical evidences suggest that utilizing the CAPT model, exploits the Cloud federation market as an opportunity for more resource utilization and future capacity planning.