Semi-parametric contextual pricing algorithm using cox proportional hazards model

Contextual dynamic pricing is a problem of setting prices based on current contextual information and previous sales history to maximize revenue. A popular approach is to postulate a distribution of customer valuation as a function of contextual information and the baseline valuation. A semi-parametric setting, where the context effect is parametric and the baseline is nonparametric, is of growing interest due to its flexibility. A challenge is that customer valuation is almost never observable in practice and is instead type-I interval censored by the offered price. To address this challenge, we propose a novel semi-parametric contextual pricing algorithm for stochastic contexts, called the epoch-based Cox proportional hazards Contextual Pricing (CoxCP) algorithm. To our best knowledge, our work is the first to employ the Cox model for customer valuation. The CoxCP algorithm has a high-probability regret upper bound of Õ (T2/3 d), where T is the length of horizon and d is the dimension of context. In addition, if the baseline is known, the regret bound can improve to O(d log T) under certain assumptions. We demonstrate empirically the proposed algorithm performs better than existing semi-parametric contextual pricing algorithms when the model assumptions of all algorithms are correct.