Ladder strategy - A bond portfolio strategy in which the portfolio is constructed to have approximately equal amounts invested in every maturity within a given range.

Last trading day - The final day under an exchange's rules during which trading may take place in a particular futures or options contract. Contracts outstanding at the end of the last trading day must be settled by delivery of underlying physical commodities or financial instruments, or by agreement for monetary settlement depending upon futures contract specifications.

Law of one price - An economic rule stating that a given security must have the same price regardless of the means by which one goes about creating that security. This implies that if the payoff of a security can be synthetically created by a package of other securities, the price of the package and the price of the security whose payoff it replicates must be equal.

Leveraged buy-out (LBO) - A transaction used for taking a public corporation private, financed through the use of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund that specializes in such investments.

Leveraged portfolio - A portfolio that includes risky assets purchased with funds borrowed.

Liability - A financial obligation, or the cash outlay that must be made at a specific time to satisfy the contractual terms of such an obligation.

Liability funding strategies - Investment strategies that select assets so that cash flows will equal or exceed the client's obligations.

Liability swap - An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.

Limit order - An order given to a broker by a customer which has restrictions upon its execution. The customer specifies a price and the order can be executed only if the market reaches or betters that price.

Limit order book - A record of unexecuted limit orders that is maintained by the specialist. These orders are treated equally with other orders in terms of priority of execution.

Limit price - Maximum price inflation.

Liquidation - Any transaction that offsets or closes out a long or short position. Related: Buy in, Evening up, Offset

Liquidity - A market is liquid when it has a high level of trading activity, allowing buying and selling with minimum price disturbance. Also a market characterized by the ability to buy and sell with relative ease.

Liquidity risk - The risk that arises from the difficulty of selling an asset. It can be thought of as the difference between the "true value" of the asset and the likely price, less commissions.

Liquidity theory of the term structure - A biased expectations theory that asserts that the implied forward rates will not be a pure estimate of the market's expectations of future interest rates because they embody a liquidity premium.

Listed stocks - Stocks that are traded on an exchange.

Load fund - A mutual fund that tends to impose large commissions, typically ranging from 8.5% on small amounts invested down to 1% on amounts of $500,000 or over. Related: No-load fund

Loan value - The amount a policyholder may borrow against a whole life insurance policy at the interest rate specified in the policy.

Local expectations theory - A form of the pure expectations theory which suggests that the returns on bonds of different maturities will be the same over a short-term investment horizon.

Long - One who has bought a contract(s) to establish a market position and who has not yet closed out this position through an offsetting sale; the opposite of short. Related: Short

Long hedge - The purchase of a futures contract(s) in anticipation of actual purchases in the cash market. Used by processors or exporters as protection against an advance in the cash price. Related: Hedge, Short hedge

Long position - In the cash market, the ownership of securities. In the futures market, the purchase of a futures contract with no offsetting short position. In the options market, the purchase of an option with no offsetting short position. Related: Short position

Long straddle - A straddle in which a long position is taken in both a put and call option.

Long-term debt to equity ratio - A capitalization ratio comparing long-term debt to shareholders' equity.

Low price-earnings ratio effect - The tendency of portfolios of stocks with a low price earnings ratio to outperform portfolios consisting of stocks with a high price-earnings ratio.

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