Post by Craig Masters

It turns out that modeling shockwaves in the interstellar medium (ISM) is relevant to the stock market. Math that I used in my astrophysics dissertation maps beautifully to the mechanics of a financial market crash. In galaxy formation, a passing adiabatic shockwave causes a discontinuity where the pressure, density, and velocity transform almost instantly across a shock front. For markets under normal, near-equilibrium conditions, order flow is a continuous diffusion. A standard execution model assumes the market can absorb selling volume smoothly. But during a flash crash, like 2010, algorithms treat the flow like a viscous fluid. When the shock hits: 1️⃣ The informational flow spikes--like an increase in Mach number. 2️⃣ Information moves faster than the diffusion capability of the market depth (like a wave propagating faster than the sound speed of the medium). 3️⃣ Conditions behind this metaphorical shock front result in an irreversible volatility cascade with zero effective liquidity. To extend the analogy, a checklist review won't necessarily catch this shockwave moving through the market. Such a review might have a hard time seeing a severe jump that violates Gaussian assumptions or risk tolerance. For more on that, along with some equations, a longer post can be accessed by going to the FEATURED section of my LinkedIn profile. (Please ignore the errors in the AI-generated graphic. I just like the look of it. Also, the original post was published on a Friday--hence the graphic title.)