Miller Risk Advisor's founder, Ross Miller, had his
trial-by-fire in risk management when Kidder, Peabody became embroiled
in the government bond trading scandal that ultimately led GE to sell
the firm to PaineWebber, which is now part of UBS.
Ross was told to drop everything and lead a risk
management "SWAT team" to each of GE Capital's major
businesses to nip any other problems in the bud. A
Framework for Risk Management in Diversified Financial Companies (written with David P. Greene, who is now at IBM), gives a peek at the
methods used to assess the major risks in a global financial enterprise.
When Ross M. Miller & Associates became Miller Risk Advisors in 1996, it was
the first consulting firm to specialize in credit risk analytics. A
Nonparametric Test for Credit Rating Refinements was the
first study that compared the accuracy of two credit risk rating
systems--those of Standard and Poor's and KMV. Within a year of its
publication in Risk Magazine under the title "Refining
Ratings," it was being reprinted as one of the classics in credit
risk management.
As a early user of the risk management tools that
began to flood the market in the late 1990s, Miller Risk Advisors
noticed that the correlation structures was dangerously inflexible and
might tend to underestimate risk, which was a major part of the problem that
brought down Long-Term Capital Management. Ross Miller and Evan
Schulman's Money
Illusion Revisited: Linking Inflation to Asset Return Correlations,
which was published in the Journal of Portfolio Management in
Spring 1999, was not only the first paper to show a systematic
variability in correlations but also provided a behavioral explanation
for why that could happen.
When dealing with large enterprises, it can be impossible to
compute correlations among business units. Treynor-Black
Revisited: A New Application to Enterprise-Wide Portfolio Optimization
shows how the Treynor-Black model can be used as a starting point for
getting handle of enterprise-level risk. This article appeared as Training
the Portfolio in the November 1999 issue of Risk
Magazine.
Early in
2001, Miller Risk Advisors saw the danger signs
at Enron. Ross Miller teamed up with energy consultant Peter Fusaro to
write What
Went Wrong at Enron. The book
immediately made
best-seller lists around the world and spent four months in the
top ten New York Times business paperbacks.
Bubbles in asset market pose their own risks and this topic is discussed
separately in the Experimental Finance section
of this site and at full length in the book Paving Wall Street: Experimental Economics and
the Quest for the Perfect Market,.
Miller Risk
Advisors continues to explore the frontiers of finance and risk
management. Ongoing projects include the examination of vulnerabilities
in mutual-fund trading systems and new approaches to equity factor
models.
