Path-vector contracting: Profit maximization and risk management

We consider an Internet Service Provider’s (ISP’s) problem of providing end-to-end (e2e) services with bandwidth guarantees, using a path-vector based approach. In this approach, an ISP uses its edge-to-edge (g2g) single-domain contracts and vector of contracts purchased from neighboring ISPs as the building blocks to construct, or participate in constructing, an end-to-end “contract path”. We develop a spot-pricing framework for the e2e bandwidth guaranteed services utilizing this path contracting strategy, by formulating it as a stochastic optimization problem with the objective of maximizing expected profit subject to risk constraints. In particular, we present time-invariant path contracting strategies that offer high expected profit at low risks, and can be implemented in a fully distributed manner. Simulation analysis is employed to evaluate the contracting and pricing framework under different network and market conditions. An admission control policy based on the path contracting strategy is developed and its performance is analyzed using simulations.