A Numerical Strategy for Telecommunications Networks Capacity Planning Under Demand and Price Uncertainty

The final publication is available via https://doi.org/10.1016/j.cam.2016.01.056[Abstract] The massive use of Internet in the last twenty years has created a huge demand for telecommunications networks capacity. In this work, financial option pricing methods are applied to the problem of network investment decision timing. The main innovative aspect is the consideration of two uncertain factors: the capacity demand and the bandwidth price, the evolution of which is modeled by suitable stochastic processes. Thus, we consider the optimal decision problem of upgrading a line in terms of the (highly volatile) uncertain demand for capacity and the price. By using real options pricing methodology, a set of partial differential equation problems are posed and appropriate numerical methods based on characteristics methods combined with finite elements to approximate the solution are proposed. The combination with a dynamic programming strategy gives rise to a global algorithm to help in the decision of optimizing the value of the line.Ministerio de Economía y Competitividad; MTM2010 21135-C0-01Xunta de Galicia; GRC2014/04

Pricing of point-to-point bandwidth contracts

In this paper we consider the pricing of point-to-point bandwidth leasing contracts and options. The underlying asset of these contracts is a point-to-point telecommunications connection. Due to the network structure the network capacity prices depend nonlinearly on each other. A leasing contract on a point-to-point connection can be seen as an option because the seller of the connection selects the cheapest path between the points. Therefore, a bandwidth option is a compound option.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/45843/1/186_2004_Article_401.pd

An analysis of spending behaviour under liquidity constraints with an application to financial hedging

Imperial Users onl

Intermediation in Future Energy Markets: Innovative Product Design and Pricing

In order to mitigate the impacts of climate change, the international community envisages significant investments in electricity generation from renewable energy sources (RES). The integration of this decentralized and fluctuating type electricity generation poses several challenges to planning, operation, and economics of power systems. The established energy systems were originally designed for a centralized electricity generation that follows the uncontrolled but well predictable demand. However, for large shares of RES, relying only on the flexibility of the generation side would be economically inefficient. Furthermore, the environmental benefits of using RES would be depleted by additional carbon emissions from ramping highly flexible fossil-fueled power plants. An appealing alternative to facilitate the efficient integration of large shares of RES is to exploit the so far mainly passive demand side as an additional source of flexibility. The established centralized approaches can hardly handle the fine-grained and decentralized nature of demand side flexibility. Therefore, the intermediation between centralized control and decentralized demand will play a major role in future energy markets, which constitutes the overarching topic of this dissertation. Typically electricity generation from RES is capital-intensive but has near zero marginal costs. On this account, novel services need to be offered in order to transmit the right economic signals. To this end, the concept of the differentiable good electricity is refined in this dissertation. Embedded into the so-called energy service, characteristics such as temporal and spatial price differentiation or the risk of interruption can be specified to differentiate the so far homogeneous good. Based on the morphological design theory a framework for the notion of energy services is established and subsequently implemented as a decision support system. This supports a systematic and structured product development process to design innovative energy services. Such an innovative energy service is, e.g., the charging of electric vehicles in car parks, where prices are differentiated by job completion deadline. This allows the car park operator to control the aggregated load of all charging jobs to follow local RES generation. Based on this energy service the downstream activity of an intermediary is formally modeled as an optimization problem and evaluated by means of an empirical simulation experiment. The results provide insights on pricing policy and the value of demand side flexibility with regard to both the integration of local RES generation and operative profit optimization. In order to illustrate another innovative energy service the presented model is extended by the upstream activity of the intermediary. Household consumers are offered monetary incentives if they allow the intermediary to control their appliances. The results indicate the cost saving potential from demand side flexibility for the intermediary\u27s procurement of electricity. Beyond that, this model formulation constitutes the foundation for further examinations, e.g., to study the strategic behavior of intermediaries on real-time electricity markets that are prone to market power abuse due to low market liquidity

Stochastic Models for Telecom Commodity Prices

Bandwidth is becoming commoditized and markets are starting to appear. Potential behaviors of these markets are not yet understood because these markets are still in the early stages of development. This is reflected in the lack of current research on the structure and dynamics of network commodity market prices. We present a method for constructing telecom commodity spot price processes as a first step for understanding these developing markets. Bandwidth, like electricity, is not storable so we draw inspiration from electricity prices and models. However, unique network features of telecommunications require specific inclusion. These are geographical substitution (arbitrage), quality of service (QoS), and the continuing pace of technological development. Developing liquidity acts as a further complication. Thus we model price development as a combination of link price processes modified by prices for equivalent QoS routes. We demonstrate our method on a simple triangular network topology and characterize a network contract graph derived from more than 10 major carrier backbones and new entrant networks. Our results cover the existence and value of arbitrage opportunities together with their effect on price development and network value (NPV). Application of this work ranges from network design to infrastructure valuation and construction of rea