Host Rock Classification (HRC) system for nuclear waste disposal in crystalline bedrock

A new rock mass classification scheme, the Host Rock Classification system (HRC-system) has been developed for evaluating the suitability of volumes of rock mass for the disposal of high-level nuclear waste in Precambrian crystalline bedrock. To support the development of the system, the requirements of host rock to be used for disposal have been studied in detail and the significance of the various rock mass properties have been examined. The HRC-system considers both the long-term safety of the repository and the constructability in the rock mass. The system is specific to the KBS-3V disposal concept and can be used only at sites that have been evaluated to be suitable at the site scale. By using the HRC-system, it is possible to identify potentially suitable volumes within the site at several different scales (repository, tunnel and canister scales). The selection of the classification parameters to be included in the HRC-system is based on an extensive study on the rock mass properties and their various influences on the long-term safety, the constructability and the layout and location of the repository. The parameters proposed for the classification at the repository scale include fracture zones, strength/stress ratio, hydraulic conductivity and the Groundwater Chemistry Index. The parameters proposed for the classification at the tunnel scale include hydraulic conductivity, Q´ and fracture zones and the parameters proposed for the classification at the canister scale include hydraulic conductivity, Q´, fracture zones, fracture width (aperture + filling) and fracture trace length. The parameter values will be used to determine the suitability classes for the volumes of rock to be classified. The HRC-system includes four suitability classes at the repository and tunnel scales and three suitability classes at the canister scale and the classification process is linked to several important decisions regarding the location and acceptability of many components of the repository at all three scales. The HRC-system is, thereby, one possible design tool that aids in locating the different repository components into volumes of host rock that are more suitable than others and that are considered to fulfil the fundamental requirements set for the repository host rock. The generic HRC-system, which is the main result of this work, is also adjusted to the site-specific properties of the Olkiluoto site in Finland and the classification procedure is demonstrated by a test classification using data from Olkiluoto. Keywords: host rock, classification, HRC-system, nuclear waste disposal, long-term safety, constructability, KBS-3V, crystalline bedrock, Olkiluoto

An approach to palaeoseismicity in the Olkiluoto (sea) area during the early Holocene

Olkiluoto Island is situated in the northern Baltic Sea, near the southwestern coast of Finland, and is the proposed location of a spent nuclear fuel repository. This study examined Holocene palaeoseismicity in the Olkiluoto area and in the surrounding sea areas by computer simulations together with acoustic-seismic, sedimentological and dating methods. The most abundant rock type on the island is migmatic mica gneiss, intruded by tonalites, granodiorites and granites. The surrounding Baltic Sea seabed consists of Palaeoproterozoic crystalline bedrock, which is to a great extent covered by younger Mesoproterozoic sedimentary rocks. The area contains several ancient deep-seated fracture zones that divide it into bedrock blocks. The response of bedrock at the Olkiluoto site was modelled considering four future ice-age scenarios. Each scenario produced shear displacements of fractures with different times of occurrence and varying recovery rates. Generally, the larger the maximum ice load, the larger were the permanent shear displacements. For a basic case, the maximum shear displacements were a few centimetres at the proposed nuclear waste repository level, at proximately 500 m b.s.l. High-resolution, low-frequency echo-sounding was used to examine the Holocene submarine sedimentary structures and possible direct and indirect indicators of palaeoseismic activity in the northern Baltic Sea. Echo-sounding profiles of Holocene submarine sediments revealed slides and slumps, normal faults, debris flows and turbidite-type structures. The profiles also showed pockmarks and other structures related to gas or groundwater seepages, which might be related to fracture zone activation. Evidence of postglacial reactivation in the study area was derived from the spatial occurrence of some of the structures, especial the faults and the seepages, in the vicinity of some old bedrock fracture zones. Palaeoseismic event(s) (a single or several events) in the Olkiluoto area were dated and the palaeoenvironment was characterized using palaeomagnetic, biostratigraphical and lithostratigraphical methods, enhancing the reliability of the chronology. Combined lithostratigraphy, biostratigraphy and palaeomagnetic stratigraphy revealed an age estimation of 10 650 to 10 200 cal. years BP for the palaeoseismic event(s). All Holocene sediment faults in the northern Baltic Sea occur at the same stratigraphical level, the age of which is estimated at 10 700 cal. years BP (9500 radiocarbon years BP). Their movement is suggested to have been triggered by palaeoseismic event(s) when the Late Weichselian ice sheet was retreating from the site and bedrock stresses were released along the bedrock fracture zones. Since no younger or repeated traces of seismic events were found, it corroborates the suggestion that the major seismic activity occurred within a short time during and after the last deglaciation. The origin of the gas/groundwater seepages remains unclear. Their reflections in the echo-sounding profiles imply that part of the gas is derived from the organic-bearing Litorina and modern gyttja clays. However, at least some of the gas is derived from the bedrock. Additional information could be gained by pore water analysis from the pockmarks. Information on postglacial fault activation and possible gas and/or fluid discharges under high hydraulic heads has relevance in evaluating the safety assessment of a planned spent nuclear fuel repository in the region.

Mathematical Aspects of Financial Markets with Frictions

Frictions are factors that hinder trading of securities in financial markets. Typical frictions include limited market depth, transaction costs, lack of infinite divisibility of securities, and taxes. Conventional models used in mathematical finance often gloss over these issues, which affect almost all financial markets, by arguing that the impact of frictions is negligible and, consequently, the frictionless models are valid approximations. This dissertation consists of three research papers, which are related to the study of the validity of such approximations in two distinct modeling problems. Models of price dynamics that are based on diffusion processes, i.e., continuous strong Markov processes, are widely used in the frictionless scenario. The first paper establishes that diffusion models can indeed be understood as approximations of price dynamics in markets with frictions. This is achieved by introducing an agent-based model of a financial market where finitely many agents trade a financial security, the price of which evolves according to price impacts generated by trades. It is shown that, if the number of agents is large, then under certain assumptions the price process of security, which is a pure-jump process, can be approximated by a one-dimensional diffusion process. In a slightly extended model, in which agents may exhibit herd behavior, the approximating diffusion model turns out to be a stochastic volatility model. Finally, it is shown that when agents' tendency to herd is strong, logarithmic returns in the approximating stochastic volatility model are heavy-tailed. The remaining papers are related to no-arbitrage criteria and superhedging in continuous-time option pricing models under small-transaction-cost asymptotics. Guasoni, Rásonyi, and Schachermayer have recently shown that, in such a setting, any financial security admits no arbitrage opportunities and there exist no feasible superhedging strategies for European call and put options written on it, as long as its price process is continuous and has the so-called conditional full support (CFS) property. Motivated by this result, CFS is established for certain stochastic integrals and a subclass of Brownian semistationary processes in the two papers. As a consequence, a wide range of possibly non-Markovian local and stochastic volatility models have the CFS property.

Strategic Information Acquisition: Applications to Herding and Auctions

The information that the economic agents have and regard relevant to their decision making is often assumed to be exogenous in economics. It is assumed that the agents either poses or can observe the payoff relevant information without having to exert any effort to acquire it. In this thesis we relax the assumption of ex-ante fixed information structure and study what happens to the equilibrium behavior when the agents must also decide what information to acquire and when to acquire it. This thesis addresses this question in the two essays on herding and two essays on auction theory. In the first two essays, that are joint work with Klaus Kultti, we study herding models where it is costly to acquire information on the actions that the preceding agents have taken. In our model the agents have to decide both the action that they take and additionally the information that they want to acquire by observing their predecessors. We characterize the equilibrium behavior when the decision to observe preceding agents' actions is endogenous and show how the equilibrium outcome may differ from the standard model, where all preceding agents actions are assumed to be observable. In the latter part of this thesis we study two dynamic auctions: the English and the Dutch auction. We consider a situation where bidder(s) are uninformed about their valuations for the object that is put up for sale and they may acquire this information for a small cost at any point during the auction. We study the case of independent private valuations. In the third essay of the thesis we characterize the equilibrium behavior in an English auction when there are informed and uninformed bidders. We show that the informed bidder may jump bid and signal to the uninformed that he has a high valuation, thus deterring the uninformed from acquiring information and staying in the auction. The uninformed optimally acquires information once the price has passed a particular threshold and the informed has not signalled that his valuation is high. In addition, we provide an example of an information structure where the informed bidder initially waits and then makes multiple jumps. In the fourth essay of this thesis we study the Dutch auction. We consider two cases where all bidders are all initially uninformed. In the first case the information acquisition cost is the same across all bidders and in the second also the cost of information acquisition is independently distributed and private information to the bidders. We characterize a mixed strategy equilibrium in the first and a pure strategy equilibrium in the second case. In addition we provide a conjecture of an equilibrium in an asymmetric situation where there is one informed and one uninformed bidder. We compare the revenues that the first price auction and the Dutch auction generate and we find that under some circumstances the Dutch auction outperforms the first price sealed bid auction. The usual first price sealed bid auction and the Dutch auction are strategically equivalent. However, this equivalence breaks down in case information is acquired during the auction.

Modeling and Forecasting Implied Volatility: Implications for Trading, Pricing, and Risk Management

Modeling and forecasting of implied volatility (IV) is important to both practitioners and academics, especially in trading, pricing, hedging, and risk management activities, all of which require an accurate volatility. However, it has become challenging since the 1987 stock market crash, as implied volatilities (IVs) recovered from stock index options present two patterns: volatility smirk(skew) and volatility term-structure, if the two are examined at the same time, presents a rich implied volatility surface (IVS). This implies that the assumptions behind the Black-Scholes (1973) model do not hold empirically, as asset prices are mostly influenced by many underlying risk factors. This thesis, consists of four essays, is modeling and forecasting implied volatility in the presence of options markets’ empirical regularities. The first essay is modeling the dynamics IVS, it extends the Dumas, Fleming and Whaley (DFW) (1998) framework; for instance, using moneyness in the implied forward price and OTM put-call options on the FTSE100 index, a nonlinear optimization is used to estimate different models and thereby produce rich, smooth IVSs. Here, the constant-volatility model fails to explain the variations in the rich IVS. Next, it is found that three factors can explain about 69-88% of the variance in the IVS. Of this, on average, 56% is explained by the level factor, 15% by the term-structure factor, and the additional 7% by the jump-fear factor. The second essay proposes a quantile regression model for modeling contemporaneous asymmetric return-volatility relationship, which is the generalization of Hibbert et al. (2008) model. The results show strong negative asymmetric return-volatility relationship at various quantiles of IV distributions, it is monotonically increasing when moving from the median quantile to the uppermost quantile (i.e., 95%); therefore, OLS underestimates this relationship at upper quantiles. Additionally, the asymmetric relationship is more pronounced with the smirk (skew) adjusted volatility index measure in comparison to the old volatility index measure. Nonetheless, the volatility indices are ranked in terms of asymmetric volatility as follows: VIX, VSTOXX, VDAX, and VXN. The third essay examines the information content of the new-VDAX volatility index to forecast daily Value-at-Risk (VaR) estimates and compares its VaR forecasts with the forecasts of the Filtered Historical Simulation and RiskMetrics. All daily VaR models are then backtested from 1992-2009 using unconditional, independence, conditional coverage, and quadratic-score tests. It is found that the VDAX subsumes almost all information required for the volatility of daily VaR forecasts for a portfolio of the DAX30 index; implied-VaR models outperform all other VaR models. The fourth essay models the risk factors driving the swaption IVs. It is found that three factors can explain 94-97% of the variation in each of the EUR, USD, and GBP swaption IVs. There are significant linkages across factors, and bi-directional causality is at work between the factors implied by EUR and USD swaption IVs. Furthermore, the factors implied by EUR and USD IVs respond to each others’ shocks; however, surprisingly, GBP does not affect them. Second, the string market model calibration results show it can efficiently reproduce (or forecast) the volatility surface for each of the swaptions markets.

Unrealized expectations of jumps in volatility: An explanation to the low and time-varying predictive power of implied volatility

The low predictive power of implied volatility in forecasting the subsequently realized volatility is a well-documented empirical puzzle. As suggested by e.g. Feinstein (1989), Jackwerth and Rubinstein (1996), and Bates (1997), we test whether unrealized expectations of jumps in volatility could explain this phenomenon. Our findings show that expectations of infrequently occurring jumps in volatility are indeed priced in implied volatility. This has two important consequences. First, implied volatility is actually expected to exceed realized volatility over long periods of time only to be greatly less than realized volatility during infrequently occurring periods of very high volatility. Second, the slope coefficient in the classic forecasting regression of realized volatility on implied volatility is very sensitive to the discrepancy between ex ante expected and ex post realized jump frequencies. If the in-sample frequency of positive volatility jumps is lower than ex ante assessed by the market, the classic regression test tends to reject the hypothesis of informational efficiency even if markets are informationally effective.

Physical properties of a boreal clay soil under differently managed perennial vegetation

The physical properties of surface soil horizons, essentially pore size, shape, continuity and affinity for water, regulate water entry into the soil. These properties are prone to changes caused by natural forces and human activity. The hydraulic properties of the surface soil greatly impact the generation of surface runoff and accompanied erosion, the major concern of agricultural water protection. The general target of this thesis was to improve our understanding of the structural and hydraulic properties of boreal clay soils. Physical properties of a clayey surface soil (0 - 10 cm, clay content 51%), with a micaceous/illitic mineralogy subjected to three different management practices of perennial vegetation, were studied. The study sites were vegetated buffer zones located side by side in SW Finland: 1) natural vegetation with no management, 2) harvested once a year, and 3) grazed by cattle. The soil structure, hydraulic properties, shrinkage properties and soil water repellency were determined at all sites. Two distinct flow domains were evident. The surface soil was characterized by subangular blocky, angular blocky and platy aggregates. Hence, large, partially accommodated, irregular elongated pores dominated the macropore domain at all sites. The intra-aggregate pore system was mostly comprised of pores smaller than 30 μm, which are responsible for water storage. Macropores at the grazed site, compacted by hoof pressure, were horizontally oriented and pore connectivity was poorest, which decreased water and air flux compared with other sites. Drying of the soil greatly altered its structure. The decrease in soil volume between wet and dry soil was 7 - 10%, most of which occurred in the moisture range of field conditions. Structural changes, including irreversible collapse of interaggregate pores, began at matric potentials around -6 kPa indicating, instability of soil structure against increasing hydraulic stress. Water saturation and several freezethaw cycles between autumn and spring likely weakened the soil structure. Soil water repellency was observed at all sites at the time of sampling and when soil was dryer than about 40 vol.%. (matric potential < -6 kPa). Therefore, water repellency contributes to water flow over a wide moisture range. Water repellency was also observed in soils with low organic carbon content (< 2%), which suggests that this phenomenon is common in agricultural soils of Finland due to their relatively high organic carbon content. Aggregate-related pedofeatures of dense infillings described as clay intrusions were found at all sites. The formation of these intrusions was attributed to clay dispersion and/or translocation during spring thaw and drying of the suspension in situ. These processes generate very new aggregates whose physical properties are most probably different from those of the bulk soil aggregates. Formation of the clay infillings suggested that prolonged wetness in autumn and spring impairs soil structure due to clay dispersion, while on the other hand it contributes to the pedogenesis of the soil. The results emphasize the dynamic nature of the physical properties of clay soils, essentially driven by their moisture state. In a dry soil, fast preferential flow is favoured by abundant macropores including shrinkage cracks and is further enhanced by water repellency. Increase in soil moisture reduces water repellency, and swelling of accommodated pores lowers the saturated hydraulic conductivity. Moisture- and temperature-related processes significantly alter soil structure over a time span of 1 yr. Thus, the pore characteristics as well as the hydraulic properties of soil are time-dependent.