Abstract
This chapter explains what financial crashes are and why, how, and when they occur. More specifically, it examines the mechanisms underlying crashes; whether we can forecast crashes; whether we could control or at least have some influence on crashes; whether crashes indicate a fundamental instability in the world financial structure; and what could be changed to modify or suppress these instabilities. The chapter considers the stock market crash of October 1987 and the main explanations for its occurrence, as well as other financial crashes in history, including the tulip mania, the South Sea bubble, and the great crash of October 1929. It also discusses extreme events in complex systems and concludes with an analysis of a new set of computational methods that can be used in the prediction of large-scale financial crashes.
Published Version
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