The idea has recently emerged from the physics literature that it might
be possible to develop a mathematical theory of financial crashes. This
book deals with practical statistical aspects of the theory. A
probabilistic model for bubbles is developed and applied to the recent
English housing bubble. It is found that there was a nationwide housing
bubble in English house prices in the years 2002-2007. Typically prices
were 30-40% over-valued and fell around 20%. London is atypical in that
the level of over-pricing was lower, only around 20%, and experienced a
drop in prices of only around 15%. There is also some suggestion of
contagious effects, with the bubble in London affecting prices in
Yorkshire and the North. Additional topics discussed include the
application of power-laws to market crashes and methods for illiquidity
crisis models - dealing with the transfer of shocks across economic
systems. This work will be of interest to market analysts and those at
the interface of academic and commercial work in particular. Whilst
containing some deeply mathematical themes, the book is nonetheless
intended to be usable and some computer code is contained in an
Appendix.