DEFINITION of 'LogNormal Distribution'
Lognormal distribution is a statistical distribution of random variables that have a normally distributed logarithm. Lognormal distributions can model a random variable X, where log(X) is normally distributed.
These distributions, under multiplication and division, are selfreplicating. That is to say, multiplying or dividing lognormal random variables will result in lognormal distributions.
BREAKING DOWN 'LogNormal Distribution'
For example, lognormal 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 lognormally distributed. Other examples of suitable applications of lognormal distribution analysis include survival rates of cancer patients and failure rates in product tests.
Lognormal distributions are positively skewed due to low mean values and high variances in the random variables.
See Investopedia's entry, "Lognormal and Normal Distribution," to learn the main differences between the two types.

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