Computer backup pools, disaster recovery, and default risk

Abstract

There is a growing popularity of computer backup pools, where a few members share the ownership, or right for service, of a computer center. Such a center stands by to provide for the lost computing capacity of a member suffering a computer breakdown and disaster recovery. The efficiency of such a solution may be examined from various points of view, such as costs, response time, reliability etc. We focus on the reliability of such an arrangement. Two types of default risks are discussed: the probability that the center itself will break down when needed, so that it would be unable to provide service (this is similar to the traditional measure of a "probability of ruin") and a "perceived probability of ruin" (the probability that a member will be affected by the failure of the center). We borrow the concepts of probability of ruin from the risk management and insurance literature, in order to reach explicit relationships between these probabilities and the pricing of a mutual computer pool. It is shown that the membership fee for each participant must be a function of both the payments of all members and their loss (call for service) distributions, reflecting thereby the simultaneity of and mutual interdependence of members.