Dynamic Contract Trading and Portfolio Optimization in Spectrum Markets

We address the question of optimal trading of bandwidth (service) contracts in wireless spectrum markets, for the primary as well as the secondary spectrum providers in this context. We propose a structured spectrum market and consider two basic types of spectrum contracts that can help attain desired flexibilities and trade-offs in terms of service quality, spectrum usage efficiency and pricing – long-term guaranteed-bandwidth contracts, and short-term opportunisticaccess contracts. A primary provider (seller) and a secondary provider (buyer) creates and maintains a portfolio composed of an appropriate mix of these two types of contracts. The optimal contract trading question in this context amounts to how the spectrum contract portfolio of a seller (buyer) in the spectrum market should be dynamically adjusted so as to maximize return (minimize cost) subject to meeting the bandwidth demands of its own subscribers. In this paper, we formulate the optimal contract trading question as a stochastic optimization problem, and obtain structural properties of the optimal dynamic trading strategy that takes into account the current market prices of the contracts and the provider usage (subscriber demand) process in the decisionmaking. We evaluate and study the optimal dynamic trading strategy numerically, and compare it with a static portfolio optimization strategy where the key trading decision is made in advance, based on the steady-state statistics of the price and usage processes.

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