Meet Dominic O’Kane, a master of algorithms using mathematics to decipher the world (and finance)

“My first love was physics”, Dominic says. “There is something quite beautiful about it. It’s an attempt to formulate a purely mathematical description of the world that has been extraordinarily successful, helping us to understand things, from the very small to the very big. And, of course, there is the satisfaction of having models that make accurate predictions, based as they are on the fact that we are dealing with an infinity of identical components, fundamental particles, and atoms, that follow simple rules. It’s a much easier task than economics where we have to deal with finite numbers of people, each with their own rational and often irrational choices!”

Dominic’s initial foray into machine learning began as an undergraduate thesis on the work of John Hopfield who demonstrated that a simple model of neurons with a local learning rule inspired by nature (Hebb’s rule) has the ability to store and recover learned patterns. In 1993, when Dominic delivered his doctoral thesis at Oxford University, titled "The Statistical Mechanical Studies of Autoassociative and Feedforward Neural Networks" (1), machine learning was approaching the end of its second wave, having run out of steam due to the lack of computing power. Similarly, his love of physics was, at the time, not fuel enough for Dominic to be able to embrace a career. Although he did find a post-doctoral position at Imperial College London, the long-term view was not attractive. “Various factors meant that there weren't a lot of permanent positions in the world of physics, and to get one of these would require moving country every two to three years which would have been very destabilizing”, he recalls, “I needed to find other applications for my craft and my interest in mathematics.”

Call it luck, call it fate, but Dominic stumbled into finance by picking up a book that will change the course of his career. No, not Lord of the Rings or To Kill a Mockingbird, but "Options Futures & Other Derivatives", by John C. Hull (2): “I read it in two or three weeks, and it was such a revelation, I still use it as one of my core textbooks today!”, he adds. Diving into finance, he realized that the transition from physics would be easy since the models employ much of the same math he used as a physicist. The main changes would be that he needed to drop the Fortran programming language for C, he would need to get up much earlier in the morning, and would have to wear a suit to work! Dominic joined Salomon Brothers in London in 1994 as an interest rate quantitative analyst in its internal hedge fund where he found that government bonds present a mathematically interesting and satisfying challenge with regards to risk and performance.

From this rather broad role, he then chose to specialize in interest rate derivative modeling and made the switch to Lehman Brothers in 1997. He found the people clever and the modeling framework used for valuation intellectually satisfying. After two years working on the proprietary trading desk, he moved into the new and fast-growing area of credit derivatives. This was a fascinating time as it presented a lot of new and interesting problems to solve, which stimulated his research interests. It also demanded a considerable amount of client education and this led Dominic to start writing educational as well as pure research papers. By 2004, Dominic led Lehman’s fixed income quantitative research department where he managed a team of twenty PhD quants developing the pricing models for the interest rate, currency, credit, and commodity trading desks. However, the challenge of trying to balance an intense work life in London with the role of a father of a young and growing family made him re-evaluate his priorities. He says that his decision to leave Lehman Brothers in 2006 to move to France was his best market timing choice ever!

While in France writing his book, "Modelling Single-name and Multi-Name Credit Derivatives" (3), he got in touch with EDHEC through an industry contact. He was invited to give a lecture, and then was hired as an Affiliated Professor of Finance in 2007. “I had come to really enjoy teaching finance having taught at Oxford University and the London Business School. I enjoyed working on publications on how to better educate clients about the risks of derivatives markets and how to make derivatives markets safer. I missed the world of academia, and I thought it was time to return to it.” As the EDHEC role was part-time, Dominic also worked as a consulting and testifying expert in financial litigation disputes such as the Lehman Bankruptcy, Libor manipulation, the CPDO rating case, the London “Whale” case, and the London Reuters FX Fix manipulation. This was a fascinating period as it showed Dominic some of the things that can happen when things go wrong in finance!

An EDHEC Professor since 2021, Dominic has been teaching the MSc in Financial Engineering (4), a top-ranking program worldwide, Data and Machine Learning, Python and C++, and a variety of more traditional finance classes. “It took me a year to find my rhythm”, he admits, “but I’ve really been enjoying teaching, talking about the more practical side of models, not just their theoretical approach. I think I’m also in a good position regarding Masters students, having worked on a trading floor. I can tell them about the theory and the practice and what to expect of the finance sector from many points of view.” But what drew Dominic to EDHEC is also the research opportunities. He’s been Research Director for the EDHEC-Risk Climate Impact Institute (5) for two years now, a way for him to reconcile many of his hats: “As a physicist, I understand the complex physics of climate change; and as an economist, I try to understand the impacts of the choices we make on our economic welfare. It’s very interesting to run this two-way research agenda, to push the limits of what we know and how we build knowledge. It’s a constant challenge that keeps me on my toes.”

Dominic’s research interests reach far and wide: from the use of machine learning to study the link between climate news and economic markets (6), to applying mathematical frameworks to calculate the carbon intensity of supply chains, and identifying where emissions are generated and how they might be reduced (7). Dominic has never stopped trying to find new applications for his early love of simple, powerful, and useful mathematical models. And during lockdown, while many of us were busy mastering sourdough bread-making, Dominic wrote 160,000 lines of code to build FinancePy (8), an open-source financial pricing and risk-management software, which he uses for teaching and has made available on Github: “It’s a way of giving back, of contributing to something”, he says. Little does he know that his contribution to EDHEC and the finance world is already as enduring as his love for physics!

Key dates

Since 2021: EDHEC Professor and EDHEC-Risk Climate Impact Institute Research Director

Since 2012: Consulting and testifying expert, Quantitative Insights Ltd

2007 - 2021: Affiliate Professor of Finance, EDHEC Business School

1997 - 2006: Head of Quantitative Research, Lehman Brothers, London

1994 - 1997: Interest Rate Quantitative Analyst, Salomon Brothers, London

1993 - 1994: Postdoctoral Research Fellow in Mathematics, Imperial College, London

1993: PhD in Theoretical Physics, Oxford University

1990: Bachelor in Physics, Imperial College, London

To know more about Professor O'Kane

• Visit Dominic O'Kane's EDHEC webpage
• Go to his Google Scholar profile
• Take a look at his Linkedin profile

(1) Statistical mechanical studies of autoassociative and feedforward neural networks, Dominic O'Kane (1993) - University of Oxford

(2) Options, Futures, and Other Derivatives, John Hull - Pearson Edition

(3) Modelling Single-name and Multi-name Credit Derivatives, Dominic O'Kane (2008) - Wiley

(4) EDHEC MSc in Financial Engineering - https://www.edhec.edu/en/programmes/masters-degree/msc-finance/msc-in-financial-engineering

(5) EDHEC Risk Climate Impact Institute - https://climateimpact.edhec.edu/

(6) The impact of climate change news on low-minus-high carbon intensity portfolios, Jean-Michel Maeso and Dominic O’Kane (2022 - EDHEC-Risk Climate Impact Institute)

(7) Optimal Climate Policy with Negative Emissions, Riccardo Rebonato, Dherminder Kainth, Lionel Melin and Dominic O'Kane - SSRN Papers, January 2023

(8) FinancePy - https://github.com/domokane/FinancePy