Ad Bid Pricing via Recursive Option Value Calculation
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Solution Overview
Problem
Current techniques for pricing bids in electronic market transactions, particularly for advertising space on electronic media, lack a forward-looking component that accounts for future events, leading to inaccurate learning values and bid prices.
Innovation Solution
The method involves dividing a time period into learning periods and generating expected revenue rates for each period. By recursively determining continuation values and option values, the method adjusts the estimated cost until the current option value is zero, at which point the bid price is set equal to the estimated cost and submitted to an advertising exchange.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If current techniques for pricing bids are used, then the pricing process is simple, but the bid prices are inaccurate because they lack a forward-looking component that accounts for future events
Solution Approach 1:
The time period is divided into discrete learning periods, allowing the bid price calculation to systematically account for future events at different time horizons. This segmentation enables the forward-looking component to evaluate expected revenues and costs across multiple periods, improving bid price accuracy without overwhelming complexity
Solution Approach 2:
The method performs preliminary calculations of expected revenues, costs, and learning values before finalizing the bid price. By recursively determining continuation values and option values in advance, the system accounts for future events before submitting the bid, ensuring accurate forward-looking pricing
2Measurement precision
If the time period is divided into multiple learning periods with recursive calculations, then the forward-looking assessment is improved, but the computational complexity increases
Solution Approach 1:
The calculation process is made dynamic through recursive determination of continuation values and option values. The method adaptively adjusts bid prices based on evolving assessments of future revenues and costs across learning periods, allowing the system to capture changing conditions while maintaining structured computation
Solution Approach 2:
The recursive calculation structure incorporates feedback mechanisms where continuation values from later learning periods inform the assessment of earlier periods. This feedback loop ensures that future event assessments are consistently integrated throughout the calculation, improving accuracy while maintaining computational coherence
Data Source
AI summary
Systems, apparatuses, and methods are provided for determining a bid value for placing an advertisement onto advertising space available through an electronic marketplace. A method is used for calculating the option value of maintaining the advertisement in the advertising space during one or more periods of time. The option value may be based on expected profits and the estimated future value of maintaining the advertisement. The option value may then be used to calculate the bid price for placing the advertisement.