Merton Miller on Derivatives

By Merton H. Miller

Book Overview

A rare opportunity to go one-on-one with an industry giant and one of today's most respected financial thinkers, Merton Miller on Derivatives is a refreshingly accessible overview of derivatives, the revolution they have wrought, and the disasters they've supposedly caused. Though routinely assailed by regulators and the media, derivatives are hailed by a celebrated group of practitioners, analysts, and theorists, led most notably by Nobel laureate Merton Miller. Miller is legendary for repeatedly demonstrating--often with humor and always with grace--the value of derivatives in price discovery, managing financial risk, and tailoring a risk-return profile. Here, in this collection of his recent essays, Miller expounds on a number of critical derivatives issues. Is it a problem that some organizations have lost substantial sums on derivatives? Miller's short answer: Some organizations will always find ways to lose money. Nor does he believe that more government regulation is the answer. He notes, for example, that for all the horror stories about derivatives, the world's banks have lost vastly more in bad real estate deals than they'll ever lose on their derivatives portfolios. Merton Miller on Derivatives offers twenty-two provocative chapters. A sampling: "The Recent Derivatives 'Disasters': Assessing the Damage" takes a close look at such debacles as Procter & Gamble, Orange County, and Barings Bank. "Financial Regulation: The Inside Game" uses an apt sports analogy to show how the derivatives regulatory game is really played, as opposed to the way outsiders imagine it is played. "Japanese-American Trade Relations: Can Rambo Beat Godzilla?" succinctly sums up the nature of Japanese-American trade. And "Risk and Return on Futures Contracts: A Chicago View" highlights the pivotal role derivatives play in hedging risk. There are also penetrating pieces on corporate governance that compare the system existing in the United States and England with the one existing in Germany and Japan. To complete the collection, a section called "Questions I'm Often Asked" features Miller's unique perspective on a wide range of topics, from what's ahead for China to what we've learned from the Crash of 1987. Contrary to widely held perceptions, the so-called "derivatives revolution" has made the world safer, not more dangerous. This explains the phenomenal growth of financial futures. As Miller shows, derivatives enable organizations to deal effectively with risks that have plagued them for decades, even centuries.

• Format: Hardcover
• Language: English
• ISBN: 0471183407
• ISBN13: 9780471183402
• Release Date: August 1997
• Publisher: Wiley
• Length: 240 Pages
• Weight: 1.20 lbs.
• Dimensions: 0.9" x 6.1" x 9.2"

Customer Reviews

Profound, economically rigorous - and hugely entertaining

Merton Miller, who died in 2001, was an outstanding figure in modern economics. He was one of three financial economists to win the Nobel Prize for Economics in 1990, in his case for his work on the capital structure of corporations - a field that, with his associate Franco Modigliani, he revolutionised if not invented. His great insight was that the value of a company, other things being equal, is invariant with regard to the mix of debt and equity that makes up its capital structure - or, to invoke one of Miller's own picturesque analogies, if I take a dollar out of my right pocket and put it into my left pocket, I am no better off.This book is a collection of speeches given by Miller in the early to mid-1990s, largely covering the subjects of the derivatives revolution, regulation and corporate governance. The subject matter sounds dry; the speeches are anything but. Miller's jokes are exceptionally good - he has great sport in particular by satirising the convoluted German system of corporate cross-shareholdings, and reflecting ruefully on the inevitable question that is always posed to professional economists ('what will happen to interest rates?' - to which the only sensible answer is 'they will fluctuate'). But underlying the wit and engaging manner is a serious and profound point. Modern finance consists principally in the management of risk. Derivatives perform an exceptionally valuable function in a modern, complex economy by enabling economic agents to accomplish this end. Ill-conceived regulation can do harm by making it impossible for corporations to manage their business risk efficiently; this will have significant economic cost, with no compensating social benefit.Many collections of speeches are testament merely to an author's vanity, and do not last beyond the occasions for which the speeches were written. This one is different: it is the fruit of an extraordinary intellect, a fine prose style, and a formidable technical expertise. It deserves to last, and is much to be recommended.

To leverage or not to leverage?

Accidently I met this book on the lecture-the one about the risk management.I guess Merton Miller is a great story teller. And most of them are full of wisdom and financial philosophy. The M & M theory is one of the milestone in the finance which does intrigue a lot of work about Leveage buyout,coporate governace,etc. This one also contains a lecture he gave in the Royal Swedish Academy of Sciences in Stockholm for his Noble prize winning.The one is titled "Leverage". I guess I am movedand totally.....Mr. Miller has many greatest students,as you know,the one is Fama, another great scholar in the finance society.This book is a collection of his lectures he gave before.Unfortunately, Mr. Miller died in June,2000.So this one seems turn out to be the last fine words he gives us.

Merton Miller on Regulation

This collection of speeches from the early/mid 1990s would be more correctly titled "Merton Miller on Regulation." Some of the speeches indeed cover the regulation of the derivatives markets. The speeches make for good reading, but this book is not a reference work for one's library. Good speeches must be relatively simple and entertaining. These are. But one should not expect a rigorous investigation of regulation (nor of derivatives regulation) in this book. The advertising on this book is misleading. This is not a book written by Merton Miller. It is a good collection of speeches given by him.

Breezy, Brillant, Refreshing.

I agree with vcpnttp@aol: "a collection of speechs ....comparable to a sunday newspaper article". Each chapter was breezy and easy to read. But I completely disagree with vcpnttp's conclusion. Miller is obviously brillant and knows derivatives well. Miller's view is of the forest, not the trees. There are too many techno-nerdy how-to books on swaps; this was a refreshing, insightful read. His understanding of the regulatory environment you'll find nowhere else. I only wish the speeches were as current as the publication date, most were from 1994 or earlier.I'm writing software for a commodity swap dealer. This is a great read.