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Lets Trade Futures!

A Novel Approach for Cloud


Computing Resource Planning and Management
Annie E. Shebanow
Cloud in Exchange, Inc.
ashebano@yahoo.com
Bo Sand en
Colorado Technical University
bsanden@acm.org
Yanzhen Qu
Colorado Technical University
yqu@coloradotech.edu
AbstractResource planning is the greatest challenge cloud
computing service providers face, because it is difcult to predict
future resource demands. Fluctuation in demand coupled with
inadequate resource planning causes over- or under-utilization of
many resources, resulting in a loss of revenue that has created
the need for a more efcient market model. The creation of an
Information Technology Exchange (ITE) is the long-awaited solu-
tion to the resource-utilization problem. Trading cloud resources
as commoditiesfutures, forward, spot, and swap contracts
would allow service providers to predict consumption, meet
future workload needs, and increase revenue. The prepackaged
and/or atomic resource bundles, called Information Technology
Exchange Traded Resources (IT-ETRs), are modeled after the
Exchange Traded Funds (ETFs) of the nancial market. In the
experiment described in this paper, the trading of cloud resources
as commodities in an exchange improves utilization.
Index TermsCloud Computing, Commodities, Exchange
Traded Funds, ETFs, Information Technology Traded Resources,
IT-ETRs, Futures, Forward, Spot, Swap, Amazon Spot, EC2,
Market Models, Trading, Agent-Based Models, Contingency
Theory, Monte Carlo Simulation, Modern Portfolio Theory,
Resources, Utilization.
I. INTRODUCTION
Cloud computing is emerging as a viable solution for
companies competing in a rapidly changing global business
environment, in which survival depends on the use of scalable,
exible, and cost-effective strategies and technology. One
issue plaguing cloud computing providers is the inability to
accurately forecast client resource demands. When demand
is low, resources are underutilized, and when demand is high,
there is a shortage of resources, both causing a loss of revenue.
This challenge has created the need for a more efcient market
model.
In this paper, we propose that prepackaged and/or atomic
resource bundles, called Information Technology Exchange
Traded Resources (IT-ETRs), be traded in an Information-
Technology Exchange (ITE), using futures, forward, spot, and
swap contracts. IT-ETRs are modeled after Exchange Traded
Funds (ETFs). ETFs are portfolios of regular stocks, bonds,
other investments, and indices of stocks and bonds [1]. Each
of the indices tracks the performance of a specic basket
of stocks. For example, the Dow Jones Industrial Average
(DJIA) is an index of 30 blue chip U.S. stocks of industrial
companies, and this index corresponds to how well those 30
blue chip stocks are performing at any given time. ETFs offer
investors the exibility to buy and sell baskets of assets in an
exchange. The contents of ETF baskets are not changed once
they are established.
Cloud resources are commodities and they can be bundled
and sold as IT-ETRs in a commodities exchange. Resources
could be from one provider or multiple providers, and an IT-
ETR may contain one single resource or multiple resources.
The availability of a large number of IT-ETRs in an
independent, open exchange would provide a great deal of
choice for consumers. Compliance, compatibility, security,
communication, and hard- and software issues may limit
customization until they are resolved. Trading cloud resources
as commodities would allow service providers to predict
consumption and improve utilization. The contributions of the
research described in this paper are: (1) a model for a method
to more accurately predict cloud resource demands, resulting
in improved utilization, by (2) the establishment of an IT
exchange for cloud resources, and (3) the packaging of cloud
resources as IT-ETRs.
II. TERMINOLOGY
Commodities exchange: a physical or electronic marketplace
to trade commodity contracts.
ETF: portfolios of regular stocks, bonds, other investments,
and of indices of stocks and bonds.
Forward contract: an agreement to exchange goods at a
xed future date for a price set at the time of the fulllment
of the contract.
Futures contract: an agreement to exchange goods on any
day before the expiration date for a price set at the time of
the agreement.
ITE: an exchange for information-technology resources.
IT-ETR - Information Technology Exchange Traded Re-
sources: prepackaged and/or atomic resource bundle.
Spot contract: an agreement to exchange goods for money,
settled on the spot.
Swap contract: an agreement to exchange goods for goods
of similar value on scheduled dates.
III. THE ITE TRADING MODEL
Figure 1 depicts an overview of a hypothetical ITE and its
clients. At the top of the gure, two cloud service providers
and their clouds are shown. Each provider has a set of re-
sources in its cloud, such as computers, networks, and storage
2013 IEEE Seventh International Symposium on Service-Oriented System Engineering
978-0-7695-4944-6/12 $26.00 2012 IEEE
DOI 10.1109/SOSE.2013.42
145
IT-ETR
List/
Delist
IT-ETR
Search/
Bid
IT-ETR
Vaiidate
IT-ETR
Record
IT-ETR
Recorded
DB
IT-ETR
Pending
DB
Resources
IT-ETR
Provider RSRC
Resources
IT-ETR
Provider
Consumer
Systems
IT-ETR
Consumer
Consumer
Systems
IT-ETR
Consumer
Provider
Cloud
Provider
Cloud
Consumer
Cloud
Consumer
Cloud
RSRC
RSRC
RSRC
RSRC
RSRC
RSRC RSRC RSRC RSRC
Figure 1. Process Layout of IT Exchange
devices, and each provider controls its own set of resources. At
the bottom of the gure, two cloud consumers are shown along
with their own private consumer-system clouds. The consumer
clouds also consist of a set of resources, and consumers control
these resources. Although we have only shown two providers
and two consumers, any number of providers and consumers
could participate in an exchange.
In the center of Figure 1, the ITE is represented by a
vertical box. The principal function of an ITE is to control
the exchange of IT-ETRs, and their limitations and time
constraints. In the exchange are a pair of databases, one for
storing pending transactions (IT-ETR Pending DB), and the
other for storing recorded IT-ETRs (IT-ETR Recorded DB).
Each database (DB) is controlled by a pair of processes,
shown above and below the databases. The Pending database is
controlled by IT-ETR List/Delist and IT-ETR Search/Bid.
Similarly, the Recorded database is controlled by IT-ETR
Validate and IT-ETR Record. The information stored in the
IT-ETR Pending DB and IT-ETR Recorded DB databases
can be mined to predict future use patterns.
IV. EVALUATION METHODOLOGY
A simulated commodities exchange for trading cloud re-
sources was created, in which agent-models mimicked real-
world participant behavior and different bidding scenarios
were studied. The simulated commodities exchange presented
a framework that supported resource trading, and was com-
prised of an economic environment, a set of strategies used
by participants in various bidding scenarios, and a market
mechanism. The theories and models used in constructing
the system included the modern portfolio theory (MPT) [2],
contingency theory, agent-based models simulation (ABMS),
and Monte Carlo simulation. For clients, selecting cloud
resources can be a challenging and risky undertaking akin
to choosing the correct stocks for a portfolio, and as such
the MPT is a good model for selecting IT-ETRs. The MPT
also offers a decision-making method for service providers in
regard to when they should make their IT-ETRs available for
trading.
In this research, we followed the same method as Wang
[3] used to optimize information retrieval (IR). (Wangs goal
was to order information retrieved for a use-query based on a
relevance metric r
i
.) For example, if we search some database
for specic information characteristics, and the query results
in n returns, we can assign a relevance measure of r
i
for
i = 1 . . . n for each of the returns. If we weigh our preference
for the returns, using a set of corresponding weights w
i
, we
can dene an overall preference metric as follows:
R
n
=
n

i=1
w
i
r
i
where R
n
denotes the overall preference. The optimization
problem is then nding a set of weights that maximize R
n
.
As Wang stated, a relevance metric cannot be known with
absolute certainty, and consequently it is a random variable
with an expectation value of E(r
i
) and a variance of
i
.
Uncertainty can arise, for example, when a consumer cannot
state the amount of system use that is needed, or, in the case of
time sharing, when system use needs to be allocated to clients.
Despite that a provider does not know what the operational
load will be, there must be a guarantee that resources will
be available. Some characteristics that go into computing a
relevance metric are correlated, which implies covariance,
and covariance further complicates the optimization problem.
(We direct the reader to [3] for a detailed description of his
method.)
To employ Wangs method, an ITE must implement a
relevance function r = f(A
it-etr
, B
it-etr
), in which A
it-etr
is a providers asking price for an IT-ETR, B
it-etr
is a con-
sumers bid for an IT-ETR, and r is the relevance or computed
tness of bid versus asking price. For our study, the tness
function was derived empirically, using constants embedded
in the decision-making logic of our agents (described below).
However, in a real-world ITE, the tness function itself would
require considerable work and study. We leave this for future
work.
The contingency theory concerns the design and use of
control systems, which are contingent upon the context of
the organizational setting in which these controls operate
[4]. In our study, the contingency theory was used to dene
relationships within the exchange by evaluating market activity
and trading history. On the provider side, using the con-
tingency theory, the trade-offs between pricing and resource
availability were explored, and the Pearson correlation was
used to determine the relationships between those trade-offs,
which in turn were used in the regression analysis of IT-ETR
transactions. On the consumer side, the contingency theory
was applied to facilitate IT-ETR purchasing decisions, based
146
on the consumers trading status, needs, and on the number of
open bids currently held.
Agent-based model simulation (ABMS) has been used to
model behavior in the stock market, supply chains, and con-
sumer markets, but also to predict the spread of epidemics
[5]. ABMS is employed when individual behavior is nonlinear
and can be presented with if-then rules. In this study, both
providers and clients were represented by agents, and their
behavior was modeled as a set of condition-action rules based
on hypothesized causal factors affecting operations, pricing,
competition, and trade. The agents were non-adaptive, lacked
the capability to change rules, and could not modify their bids.
No articial-intelligence techniques were used in this research.
Agents were identiable through a specic set of proles
conservative, moderate, poised, and avid. The proles were
randomly assigned to agents before trading began. An agent
could be in an active or inactive state.
The Monte Carlo simulation (MSC) is a method for ana-
lyzing behaviors within processes that exhibit uncertain char-
acteristics, in order to plan remedial action. In our study,
we used the MCS to forecast activities in the commodities
exchange, make decisions regarding the trading of IT-ETRs,
and determine the reliability of the exchange. The main
limitation for our research was the lack of case studies: no
independent, real-world cloud exchange exists. Therefore, the
search-and-bid request data from the simulation could not be
compared to prior data. The simulation results of our research
were only compared with the data provided in Implementing
the Poughkeepsie Green Data Center: Showcasing a Dynamic
Infrastructure [6], which states that 85% of cloud resources
are underutilized.
V. RESULTS
Using two different scenarios, a simulation model was
constructed to investigate the effects of an exchange on
resource utilization. In both scenarios, the parameters under
consideration included pricing and the number of IT-ETR
packages, service providers, and consumers.
Scenario I: No exchange, multiple service providers, xed-
price resources. The number of consumers was constant;
demand was not deterministic. This scenario was used as the
baseline. If the consumers preferred price was not available,
no transaction took place and no resources were used. Results
are shown in Figure 2.
Scenario II: With an exchange, multiple service providers,
supply-and-demand pricing, and IT-ETRs. The number of
consumers was constant and the same as in Scenario I; demand
was deterministic. IT-ETRs were selected based on price,
resources in the IT-ETR, and a comparison of the relative
weight of each criteria. Relative weights were assigned a value
on a scale of 1 to 10, where a relative weight of 10 meant
extremely important. Results are shown in Figure 3.
In Scenario II, measured utilization of the provider clouds
was 82.22% versus 23.33% in scenario I. Comparing the
simulation results of Scenarios I and II, we observed that the

0 10 20 30 40 S0 60 70
1
S1
101
1S1
201
2S1
301
3S1
401
S|mu|anon kuns
k
e
s
o
u
r
c
e
s

1rad|ng c|oud resources w|thout an exchange
urchased
8esources
Avallable
8esources
Figure 2. Scenario I: Trading Cloud Resources Without an Exchange

0 10 20 30 40 S0 60 70
1
S1
101
1S1
201
2S1
301
3S1
401
S|mu|aon kuns
k
e
s
o
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r
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e
s

1rad|ng c|oud resources |n an echange
urchased
8esources
Avallable
8esources
8lds #
Figure 3. Scenario II: Trading Cloud Resources With an Exchange
supply-and-demand pricing model increased resource utiliza-
tion. Although the test system was scaled for simplicity, the
results point to a favorable outcome for a real-world exchange.
To determine how the various contract types affected trading
activity, we simulated an ITE with different types of contracts
and observed the rate at which they were offered versus how
many were purchased by consumers.
Figure 4 shows the contract-type-based transactions in mul-
tiple simulation runs. Futures and forward contracts in differ-
ent trading time slots had the overall highest trading numbers
per number of bids. Futures were attractive to consumers,
because payment can be made anytime until a day before
the expiration date, and the price is set at the time of the
agreement. Forward contracts were also attractive, because
no payment is required until a xed, future delivery date,
on which the price is also set. Both contracts have the
advantage that resources can be used at some future date.
While conservative clients prefer to know immediately what
the exact costs of their purchases are, and thus tend toward
futures contracts, the speculative (avid) clients gamble that
prices will decrease but chance possibly unfavorable price
uctuations. Consumers who need resources for immediate use
favor spot contracts, because the transaction is settled on the
spot, and the resources are available instantly. Swap contracts
are agreements between clients who make an even trade of
147

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10
20
30
40
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60
70
80
90
100

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Figure 4. Percentage of IT-ETRs Purchased Compared to Number of Bids
Per Contract Type


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Crouped Contract Types for 75 Simulation Runs
Available IT-ETRs & Received bids per contract types
# of Available
IT-ETRs
# of Bius
Figure 5. Number of Bids Compared to Available IT-ETRs
IT-ETRs, but because during the simulation runs there were
only a limited number of IT-ETRs with similar congurations,
few swap transactions took place.
Figure 5 provides a visual of the number of IT-ETRs
available versus the number of bids placed in the exchange.
Study results showed that in relation to the number of available
IT-ETRs, the number of bids for futures and forward contracts

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I
T
-
E
T
R
s

P
u
r
c
b
a
s
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Simulation Runs
Flexibility
No Flexibility
Figure 6. The Effect of IT-ETR Flexibility and Inexibility On Sales
followed or exceeded the number of available IT-ETRs, while
the bids for spot and swap contracts did not. As shown in
Figure 6, the system was inuenced by the available choices
in the exchange. Having a degree of exibility in the purchase
requests regarding use schedule, resource types, and price
limitation allowed for additional improvements in resource
selection.
VI. RELATED WORK
Currently, there is no open, independent commodities ex-
change available for trading cloud resources. Amazon intro-
duced a spot pricing market with EC2, which allows users to
purchase Amazon resources in a closed environment. Exam-
ples of economic models for managing and trading resources
in application domains include: Nimrod-G [7], Popcorn [8],
Spawn [9], Java Market [10], Ocean [11], GridSim [12], G-
commerce [13], Grid Economy [14], GridEcon [15], the work
of [16], and Mandi [17]. These economic models employ
auction, bargaining, bid-based proportional resource sharing,
commodity market, monopoly and oligopoly, and prediction,
or a combination thereof. Nimrod-G [7] is a system archi-
tecture for which computational economy is used as a model
to enable the management and scheduling of computations
on a grid. The Popcorn project [8] provides a market-based
mechanism to trade CPU time and motivate members to
provide their CPU cycles for others to use. The Spawn project
[9] is a market-based system that utilizes idle resources in
a distributed network. The Java Market is used to sell and
purchase spare CPU cycles; the concepts of cost, benet, and
negotiation are part of the Java Market framework. The Java
Market [10] is used to sell and purchase spare CPU cycles;
the concepts of cost, benet, and negotiation are part of the
Java Market framework.
The Ocean project [11] is a marketplace that facilitates
trading dynamic, distributed computing resources over the
Internet as commodities. The project is based on a peer-to-
peer distributed double-auction.
GridSim [12] is a Java-based, discrete-event Grid simulation
toolkit that provides facilities for modeling and simulating
resources and network connectivity with different capabilities,
congurations, and domains. GridSim is used for assigning
application tasks to resources and managing their execution.
This toolkit was used in the Nimrod-G project to design
and evaluate its deadline- and budget-constrained scheduling
algorithms.
The G-commerce research project [13] examined the prob-
lem of dynamic resource allocation on the grid, with an em-
phasis on computational market economies. In G-commerce,
the eld of economics for grid-resource allocation is used
by allowing applications to treat computational, network, and
storage resources as individual and interchangeable commodi-
ties independent of the systems, networks, and storage types.
The Grid Economy project [14] is a computational economy
framework for resource allocation and for supply-and-demand
regulation in Grid computing environments. In Grid Economy,
resource owners try to maximize utilization to achieve the
148
best possible returns on their investments, while resource
consumers adopt a strategy of solving their problems at a
lowest possible cost. Through trading and brokering services,
the Grid Economy framework provides mechanisms for opti-
mizing provider and consumer objectives.
Other researchers have proposed market-model platforms
for resource allocation in a network environment. For example,
GridEcon [15] is a simulated, generic, cloud-environment plat-
form in a commercial cloud-computing setting that researchers
could use as a test bed for certain cloud computing projects.
Market-Based Resource Allocation for Computing: A
model and simulation [16] was an investigation into the type
of market mechanisms that could improve resource allocation.
The problem of inefcient resource allocation in computational
grids was addressed by creating a model of an electronic
marketplace.
Mandi [17] is a market-exchange framework that offers
consumers and providers three options: a) to participate in a
continuous double auction, in which bids and asks are matched
constantly; b) to buy or sell in a commodity market with xed
prices and immediate access to resources but no guarantee
of best price; or, c) to start a sealed-price auction. Mandi is
a composite of multiple market models, and providers can
advertise their services.
Many market solutions and techniques have provided infor-
mation for cloud resource trading and management systems,
some with the use of different market models. Our proposed
market model goes beyond the work of others, because it
incorporates the idea of packaging cloud resources (IT-ETRs)
for trading in a commodities exchange (ITE).
VII. CONCLUSION
In this paper, we dened ITE and IT-ETRs, and described
how an exchange could be constructed and IT-ETRs could
be traded in that exchange. Packages of cloud resources,
modeled after the existing Exchange Traded Funds, provided
a method to trade resources in a simulated exchange, and
the successful execution and outcome of the project indicate
that this is a viable method for trading cloud resources in
the real world. This research is presented in a theoretical
form and does not address all issues of the cloud. How-
ever, in order to apply a commodities exchange for cloud
resources, many infrastructure and market challenges of the
cloud must be overcome, such as those related to compliance,
interchangeability, licensing, protocol, policies, security, and
scalability. Some of the theories and techniques used in the
simulated exchange could be applied in a real-world exchange.
The outcome of this research leads us to believe that an
independent, global, open exchange to trade cloud resources
would provide a viable solution to the challenge of forecasting
resource demand. Future expansion of this research could
include the building of an experimental, small-scale ITE in
order to determine the logistics of building an actual full-scale
information technology exchange.
VIII. ACKNOWLEDGEMENT
We thank Ayna Meppelink, our editor, for her discerning
recommendations, meticulous editing, and going far beyond
the call of duty.
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