Lambda: The same as vega.

Lender option: Floor on a single-period forward rate agreement.

Leptokurtosis: The non-normal distribution of asset-price returns. Refers to a probability distribution that has a fatter tail and a sharper hump than the normal distribution.

Level payment swap: Evens out those fixed-rate payments that would otherwise vary, for example, because of the amortisation of the principal.

Leverage: The ability to control large amounts of an underlying variable for a small initial investment.

Liability: Probable future sacrifice of economic benefit due to present obligations to transfer assets or provide services to other entities as a result of past events or transactions. Generally classed as either current or long-term.

Liability swap: An interest rate swap or currency swap used in conjunction with an underlying liability such as a borrowing. See asset swap.

LIBID: The London Interbank Bid Rate, the rate at which banks will pay for funds in the interbank market.

LIBOR: The London Interbank Offered Rate, the lending rate for all major currencies up to one-year set at 11am each day by the British Bankers Association.

Libor fixing: The Libor rate "fixed" by the British Bankers Association (BBA) at 11am each day, for maturities up to one year.

LIFFE: The London International Financial Futures and Options Exchange, the largest futures exchange in Europe.

Limean: The arithmetic average of Libor and Libid rates.

Limit up/down: Futures prices are generally not allowed to change by more than a specified total amount in a specified time, in order to control risk in very volatile conditions. The maximum movements permitted are referred to as limit up and limit down.

Liquidation: Any transaction that closes out or offsets a futures or options position.

Liquidity: A word describing the ease with which one can undertake transactions in a particular market or instrument. A market where there are always ready buyers and sellers willing to transact at competitive prices is regarded as liquid. In banking, the term is also used to describe the requirement that a portion of a bank’s assets be held in short-term risk-free instruments, such as government bonds, T-Bills and high quality Certificates of Deposit. This is the responsibility of the liquidity desk, part of Treasury.

Loan-equivalent amount: Description of derivative exposure which is used to compare the credit risk of derivatives with that of traditional bonds or bank loans.

Lognormal: A variable’s probability distribution is lognormal if the logarithm of the variable has a normal distribution.

Lognormal distribution: The assumption that the natural logarithm of today’s interest rate, for example, minus the natural logarithm of yesterday’s rate is normally distributed.

Long: A long position is a surplus of purchases over sales of a given currency or asset, or a situation which naturally gives rise to an organisation benefiting from a strengthening of that currency or asset. To a money market dealer, however, a long position is a surplus of borrowings taken in over money lent out (which gives rise to a benefit if that currency weakens rather than strengthens). See short.

Long-dated forward: Forward foreign exchange contract with a maturity of greater than one year. Some long-dated forwards have maturities as great as 10 years.

Long-term assets: Assets which are expected to provide benefits and services over a period longer than one year.

Long-term liabilities: Obligations to be repaid by the firm more than one year later.

Lookback option: Option that allows the purchaser, at the end of a given period of time, to choose as the rate for exercise any rate that has existed during the option’s life.

Low coupon swap: Tax-driven swap in which the fixed-rate payments are significantly lower than current market interest rates. The floating-rate payer is compensated by a front-end fee.

LSE: London Stock Exchange.