A Price Dynamics in Bandwidth Markets for Point-to-point Connections

We describe a model of a network of N sub-networks (or routers) where M network users making concurrent point-to-point connections by selling and buying router capacity to and from each other. The resources need to be acquired in complete bundles, but there is only one spot market for each router, i.e. no way to place bids on complete bundles. In order to describe the internal dynamics of the market, we model the observed prices by N-dimensional Ito-processes. Modeling using stochastic processes is novel in this context of describing interactions between end-users in a system with shared resources, and allows a standard set of mathematical tools to be applied. The derived models is intended to price contingent claims on network capacity and thus to price complex network services such as, trading resource bundles, pricing quality of service levels, multicast service, etc.