Optimal Real-Time Bidding Strategies

DOI10.1093/AMRX/ABW007MaRDI QIDQ4683871zbMATH OpenOpenAlexFDO

Authors Joaquin Fernandez-Tapia, Olivier Guéant, J.-M. Lasry

Publication date 26 September 2018

Published in Applied Mathematics Research eXpress (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1511.08409

zbMATH Keywords

Poisson processprobability distributionreal-time bidding strategiesstochastic optimal control

Mathematics Subject Classification ID

Inventory, storage, reservoirs (90B05) Auctions, bargaining, bidding and selling, and other market models (91B26) Optimal stochastic control (93E20)

Abstract: The ad-trading desks of media-buying agencies are increasingly relying on complex algorithms for purchasing advertising inventory. In particular, Real-Time Bidding (RTB) algorithms respond to many auctions -- usually Vickrey auctions -- throughout the day for buying ad-inventory with the aim of maximizing one or several key performance indicators (KPI). The optimization problems faced by companies building bidding strategies are new and interesting for the community of applied mathematicians. In this article, we introduce a stochastic optimal control model that addresses the question of the optimal bidding strategy in various realistic contexts: the maximization of the inventory bought with a given amount of cash in the framework of audience strategies, the maximization of the number of conversions/acquisitions with a given amount of cash, etc. In our model, the sequence of auctions is modeled by a Poisson process and the extit{price to beat} for each auction is modeled by a random variable following almost any probability distribution. We show that the optimal bids are characterized by a Hamilton-Jacobi-Bellman equation, and that almost-closed form solutions can be found by using a fluid limit. Numerical examples are also carried out.

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Cited in

(7)

• A Pareto optimal mechanism for demand-side platforms in real time bidding advertising markets
• Diffusive limit approximation of pure-jump optimal stochastic control problems
• Control problems in online advertising and benefits of randomized bidding strategies
• Statistical modeling of Vickrey auctions and applications to automated bidding strategies
• Robust optimal designs using a model misspecification term
• Near-continuous time reinforcement learning for continuous state-action spaces
• Diffusive limit approximation of pure jump optimal ergodic control problems

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