Pricing of insurance policies against cloud storage price rises

TL;DR

This paper introduces an insurance-based approach to protect cloud storage users from price increases, using financial options theory to determine premiums based on historical market data.

Contribution

It proposes a novel insurance model for cloud storage price risk and derives a formula for pricing the insurance premium using financial options theory.

Findings

Premium grows nearly quadratically with coverage period under one year

Premium growth slows but remains faster than linear over longer periods

Application of the model to real market data demonstrates practical viability

Abstract

When a company migrates to cloud storage, the way back is neither easy nor cheap. The company is then locked up in the storage contract and exposed to upward market prices, which reduce the company's profit and may even bring it below zero. We propose a protection means based on an insurance contract, by which the cloud purchaser is indemnified when the current storage price exceeds a pre-defined threshold. By applying the financial options theory, we provide a formula for the insurance price (the premium). By using historical data on market prices for disks, we apply the formula in realistic scenarios. We show that the premium grows nearly quadratically with the length of the coverage period as long as this is below one year, but grows more slowly, though faster than linearly, over longer coverage periods.