Spot pricing framework for loss guaranteed Internet service contracts

We develop a spot pricing framework for intra-domain expected bandwidth contracts with loss based QoS guarantees. The framework accounts for both costs and risks associated with QoS delivery. A nonlinear pricing scheme is used for cost recovery and a utility based options pricing approach is developed for the risk related pricing. Application of options pricing techniques in Internet services provides a mechanism for fair risk sharing between the provider and the customer, and may be extended to price other uncertainties in QoS guarantees.