Thermonance: A Theoretical Framework for Entropy-Based Early Warning in Financial Markets | Zenodo Skip to main Communities My dashboard Log in Sign up Kerimov-Alekberli model Published May 4, 2026 | Version 1.0 Preprint Open Thermonance: A Theoretical Framework for Entropy-Based Early Warning in Financial Markets Authors/Creators Karimov, Hikmat (Researcher) 1 Alekberli, Rahid (Researcher) 1 Show affiliations 1. Azerbaijan Technical University Description This position paper introduces thermonance a theoretical programme that transplants the Karimov-Alekberli (KA) seismological early-warning framework [ 12 , 13 ] into nancial market microstructure. The KA model detects critical transitions in stressed physical systems by tracking the Causal Entropic Response (CER): the rate at which system entropy deviates from its historical baseline. We formally dene a nancial analogue the nancial CER (fCer) in terms of order-ow imbalance entropy, volume entropy, and bidask spread entropy, and derive the structural isomorphism from seismological to nancial variables. To illustrate the framework's internal consistency prior to empirical validation, we present an enhanced Monte Carlo simulation (N = 2,190 trading-day equivalent periods; 15 injected crash events across three severity levels). The simulation yields AUC = 0.96 (simplied fCer) and AUC = 0.79 (derivative-based full fCer) at a 25 day lead time. We are explicit throughout that these gures are simulation results, not empirical ndings; they demonstrate mathematical self-consistency, not predictive validity on real markets. We discuss two formulations of fCer a simplied level-based approximation suitable for theoretical analysis and a derivative-based full formulation consistent with the original KA denition and recommend an adaptive exponential-decay baseline (λ-EWMA) in place of a xed rolling window. The theoretical framework is applied to three asset classes (cryptocurrencies, foreign exchange, equity indices). An empirical research agenda in three stages is outlined. Files thermofinance_paper (1).pdf Files (321.8 kB) Name Size Download all thermofinance_paper (1).pdf md5:452c9c12e183bc34b3ee82b7e6573f66 321.8 kB Preview Download Additional details Related works Cites Preprint: arXiv:2604.24083 (arXiv) Preprint: arXiv:2604.24076 (arXiv) References Per Bak, Chao Tang, and Kurt Wiesenfeld. Self-organized criticality: An explanation of the 1/f noise. Physical Review Letters, 59(4):381384, 1987 Bank for International Settlements. 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Lack of critical slowing down suggests that nancial meltdowns are not critical transitions, yet could be avoided with diligence. PLoS ONE, 11(1):e0144198, 2016. Zhi-Qiang Jiang, Wen-Jie Xie, Wei-Xing Zhou, and Didier Sornette. Multifractal analysis of nancial markets: A review. Reports on Progress in Physics, 82(12): 125901, 2019 Anders Johansen, Olivier Ledoit, and Didier Sornette. Crashes as critical points. International Journal of Theoretical and Applied Finance, 3(2):219255, 2000 J.P. Morgan. Riskmetrics technical document. Technical report, J.P. Morgan, 1994. URL https://www.msci.com/documents/10199/ 5915b101-4206-4ba0-aee2-3449d5c7e95a. Hikmat Karimov and Rahid Zahid Alekberli. Causal entropic response as a precursor to seismic critical transitions, 2025. URL https://arxiv.org/abs/2604.24083 Hikmat Karimov and Rahid Zahid Alekberli. Thermodynamic early warning signals in seismology: The ka framework, 2025. URL https://arxiv.org/abs/2604.24076 Albert S. Kyle. 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Nature, 461(7260): 5359, 2009 Didier Sornette. Why Stock Markets Crash: Critical Events in Complex Financial Systems. Princeton University Press, 2003. 41 Views 54 Downloads Show more details All versions This version Views Total views 41 41 Downloads Total downloads 54 54 Data volume Total data volume 18.3 MB 18.3 MB More info on how stats are collected.... Versions External resources Indexed in OpenAIRE Communities Keywords and subjects Keywords causal entropic response thermonance KA model order-ow imbalance flash crash thermodynamics entropy early warning signals econophysics Details DOI DOI Badge DOI 10.5281/zenodo.20028856 Markdown [](https://doi.org/10.5281/zenodo.20028856) reStructuredText .. image:: https://zenodo.org/badge/DOI/10.5281/zenodo.20028856.svg :target: https://doi.org/10.5281/zenodo.20028856 HTML <a href="https://doi.org/10.5281/zenodo.20028856"><img src="https://zenodo.org/badge/DOI/10.5281/zenodo.20028856.svg" alt="DOI"></a> Image URL https://zenodo.org/badge/DOI/10.5281/zenodo.20028856.svg Target URL https://doi.org/10.5281/zenodo.20028856 Resource type Preprint Publisher Zenodo Languages English Rights License Creative Commons Attribution Non Commercial No Derivatives 4.0 International No further description. 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