Yesterday the DowJones - and with them, the rest of the world’s Bourses - plunged because GE had worse results for this quarter than expected. We clearly see the tail wagging the dog, and all this because the financial world is so jittery.

How can this nervous state can be described mathematically ?
No doubt, volatility, as an outstanding parameter of the market’s underlying brownian, jumps into mind. But not only ! Maybe it was the volatility structure’s stochastic volatility itself that plays the dominant role.
Or, it is the Poisson jumps that changed frequency ?

There should be a few more other things. A sensitivity factor that reacts to trigger, Dirac events. Parameters that generates not only wider, but also, more frequent jumps. An increase in correlation that causes falls to give birth to more falls, and upswing modes to boost beyond reason upward trends.

In short, we should endeavour to put some parts of behavioural finance into equations…