Progress on the Economic Model of Storage

I've been working more on the economic model of long-term storage. As an exercise, I tried to model the effect on the long-term cost storage on disk of the current floods in Thailand. The more I work on this model, the more complex the whole problem of predicting the cost of long-term storage becomes. This time, what emerged is that, despite my skepticism about Kryder's Law, in a totally non-obvious way I had wired in to the model the assumption that disk prices could never rise! So when I tried to model the current rise in disk prices, things went very wrong. So, until I get this fixed, the best I can do is to model a pause of a varying number of years before disk prices resume their Kryder's Law decrease.

For this simulation, I assume that interest rates reflect the history of the last 20 years, that the service life of disks is 4 years, that the planning horizon is 7 years, that the disk cost is 2/3 of the 3-year cost of ownership, and that the initial cost of the unit of storage is $100. The graph plots the endowment required to have a 98% probability of surviving 100 years (z-axis) against the length of the initial pause in disk cost decrease in years (y-axis), and the percentage annual decrease in disk cost thereafter (x-axis).

As expected, the faster the disk price drops and the shorter the pause before it does, the lower the endowment needed. In this simulation the endowment needed ranges from 4.2 to 17.6 times the initial cost of storage, but these numbers should be taken with a grain of salt. It is early days and the model has many known deficiencies.