The Risk Limited Glossary
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Law of Averages - the statistical concept that the average of independent observations of random variables that have the same probability distribution is increasingly likely to be close to the expected value of the random variables as the number of observations grows.
Law of Large Numbers - the statistical concept that in repeated, independent trials with the same probability of success in each trial, the percentage of successes is increasingly likely to be close to the chance of success as the number of trials increases.
Least Squares Remapping - a global remapping implemented using the method of least squares (see below).
Leptokurtosis - the property of a statistical distribution to have more occurrences far away from the mean than would be predicted by a Normal distribution. Also referred to as 'Fat Tails'.
LIBOR - the London Interbank Offered Rate. The rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market.
Linear Instruments - financial instruments whose value varies in a linear fashion with underlying market price changes. This includes financial instruments such as futures and plain vanilla swaps.
Linear Least Squares - the principle or method by which the fit of a function to data is such that the sum of the squared residuals is minimized. In linear regression, the function is a line.
The sum of the squares of the residuals is used instead of the absolute values because this allows the residuals to be treated as a continuous differentiable quantity. However, because squares of the residuals are used, outlying points can have a disproportionate effect on the fit, a property which may or may not be desirable depending on the particular problem being considered.
Liquidity - a market condition in which assets or products can be traded with ease without dramatically altering their current quoted prices. A market is said to be "liquid" when it has a high level of trading activity and open interest.
LME - an acroynm for the London Metal Exchange.
LNG - an acronym for Liquified Natural Gas; natural gas that has been condensed to a liquid by cooling the gas.
Load [electrical] - the amount of electrical power required on electrical equipment or on an electric system.
Load Factor [electrical] - the ratio of average demand to maximum demand or total capacity.
Log Normal Distribution - a probability distribution such that the natural logarithm of the variable is normally distributed.
Long Position - the state of actually owning a security, contract, or commodity; in trading and risk management jargon also referred to as a 'long'. Opposite of a short.
Lookback Option - an exotic option whose payoff depends on the minimum or maximum price of the underlying asset during some portion of the life of the option.
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