Log-Normal Distribution

AAA

DEFINITION of 'Log-Normal Distribution'

A statistical distribution of random variables which have a normally distributed logarithm. Log-normal distributions can model a random variable X where log(X) is normally distributed.

These distributions, under multiplication and division, are self-replicating. That is to say, multiplying or dividing log-normal random variables will result in log-normal distributions.

INVESTOPEDIA EXPLAINS 'Log-Normal Distribution'

For example, log-normal distributions can model certain instances, such as the change in price distribution of a stock, or commodity positions. This is because the time series creates random variables. By taking the natural log of each of the random variables, the resulting set of numbers will be log-normally distributed. Other uses include survival rates of cancer patients or failure rates in product tests.

RELATED TERMS
  1. Euler's Constant

    The limit of the sum of 1 + 1/2 + 1/3 + 1/4 ... + 1/n, minus ...
  2. Poisson Distribution

    A statistical distribution showing the frequency probability ...
  3. Normal Distribution

    A probability distribution that plots all of its values in a ...
  4. Probability Distribution

    A statistical function that describes all the possible values ...
  5. Kurtosis

    A statistical measure used to describe the distribution of observed ...
  6. Random Walk Theory

    The theory that stock price changes have the same distribution ...
RELATED FAQS
  1. What is the difference between a simple random sample and a stratified random sample?

    Simple random samples and stratified random samples differ in how the sample is drawn from the overall population of data. ... Read Full Answer >>
  2. What are the advantages and disadvantages of using systematic sampling?

    As a statistical sampling method, systematic sampling is simpler and more straightforward than random sampling. It can also ... Read Full Answer >>
  3. What is the difference between the standard error of means and standard deviation?

    The standard deviation, or SD, measures the amount of variability or dispersion for a subject set of data from the mean, ... Read Full Answer >>
  4. What is the theory of asymmetric information in economics?

    The theory of asymmetric information was developed in the 1970s and 1980s as a plausible explanation for common phenomena ... Read Full Answer >>
  5. How does market risk differ from specific risk?

    Market risk and specific risk are two different forms of risk that affect assets. All investment assets can be separated ... Read Full Answer >>
  6. How is perpetuity used in the Dividend Discount Model?

    The basic dividend discount model (DDM) creates an estimate of the constant growth rate, in perpetuity, expected for dividends ... Read Full Answer >>
Related Articles
  1. Markets

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  2. Active Trading

    What Is Market Efficiency?

    The efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?
  3. Investing Basics

    Economic Indicators That Do-It-Yourself Investors Should Know

    Understanding these investing tools will put the market in your hands.
  4. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  5. Options & Futures

    Options Trading Volume And Open Interest

    Learn how these two statistics can give you an edge in trading options.
  6. Fundamental Analysis

    A Disaster-Protection Plan For Your Portfolio

    If you can't predict the future, you'll need to plan ahead to protect your assets from the impact of major world events.
  7. Active Trading

    Introduction To Stationary And Non-Stationary Processes

    What to know about stationary and non-stationary processes before you try to model or forecast.
  8. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  9. Fundamental Analysis

    Understanding the Simple Random Sample

    A simple random sample is a subset of a statistical population in which each member of the subset has an equal probability of being chosen.
  10. Economics

    What is Systematic Sampling?

    Systematic sampling is similar to random sampling, but it uses a pattern for the selection of the sample.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center