Quantum Field Theory of Black-Swan Events

Abstract

Free and weakly interacting particles are described by a second-quantized nonlinear Schrodinger equation, or relativistic versions of it. They describe Gaussian random walks with collisions. By contrast, the fields of strongly interacting particles are governed by effective actions, whose extremum yields fractional field equations. Their particle orbits perform universal Levy walks with heavy tails, in which rare events are much more frequent than in Gaussian random walks. Such rare events are observed in exceptionally strong windgusts, monster or rogue waves, earthquakes, and financial crashes. While earthquakes may destroy entire cities, the latter have the potential of devastating entire economies.