Real option valuation on grid computing

• Published in: Decision Support Systems 2008-12, Vol.46 (1), p.333-343
• Main Authors: Zhang, Juheng, Bandyopadhyay, Subhajyoti, Piramuthu, Selwyn
• Format: Article
• Language: English
• Subjects: Algorithmics. Computability. Computer arithmetics; Applied sciences; Computer science; control theory; systems; Computer systems and distributed systems. User interface; Decision theory. Utility theory; Distributed processing; Exact sciences and technology; Firm modelling; Grid computing; Monopolies; Monte Carlo simulation; Operational research and scientific management; Operational research. Management science; Real option valuation; Real options analysis; Software; Studies; Theoretical computing; Uncertainty
• ISSN: 0167-9236; 1873-5797
• DOI: 10.1016/j.dss.2008.07.003

Grid computing essentially involves transparent access to distributed computing where computing resources are pooled and shared both within and among organizations. Grid computing is increasingly becoming a viable option for businesses looking for high-end computing requirements for relatively short periods of time. We analyze some economic decision criteria for a grid computing provider wishing to provide such a service to businesses. Given the large amount of uncertainty in prices and demand (which is demonstrated through Monte Carlo simulations) for such a service, a real options valuation technique is particularly suitable for such an exercise. We study the dynamics of grid computing from an economic perspective. Specifically, we consider a monopolist scenario providing two kinds of service, one of which might preempt the other.