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Lognormal Distribution Presentation

The lognormal distribution is a probability distribution where the logarithm of the random variable is normally distributed. It is used when values are positively skewed and the natural logarithm of the values are approximately normally distributed. The lognormal distribution is commonly used in biology and finance to model growth rates and stock prices. In Excel, the LOGINV function can be used to generate random numbers from a lognormal distribution by specifying the mean and standard deviation.

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143 views2 pages

Lognormal Distribution Presentation

The lognormal distribution is a probability distribution where the logarithm of the random variable is normally distributed. It is used when values are positively skewed and the natural logarithm of the values are approximately normally distributed. The lognormal distribution is commonly used in biology and finance to model growth rates and stock prices. In Excel, the LOGINV function can be used to generate random numbers from a lognormal distribution by specifying the mean and standard deviation.

Uploaded by

zura
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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LOGNORMAL DISTRIBUTION

 DEFINITION:
A lognormal (log-normal or Galton) is a probability distribution with a
normally distributed logarithm. If its logarithm is normally distributed,
a random variable will normally be distributed.

 The probability density function is:

1 1
− 2 (ln 𝑥 −𝜇)2
𝑒 2𝜎 , 𝑖𝑓 𝑥 > 0
𝑓 𝑥 = ൞ 𝑥 2𝜋𝜎 2
0, 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒
The lognormal distribution is used based
on these conditions:
 The mean and variance for lognormal distribution are:
𝜎2 • Distribution is a positively skewed,
𝜇+ 2 2 2
𝑒 and 𝑒 2𝜇+𝜎 𝑒 𝜎 − 1 respectively which is 𝜎 must with most values near lower limit.
be greater than 0. • Natural logarithm of the distribution
usually is a normal distribution.
• Upper and lower limits are
 A random number can generate from a lognormal distribution with
mean, 𝜇 and standard deviation, 𝜎 by using formula in Excel: unlimited, but the uncertain variable
cannot fall below the value of the
𝑥 = 𝐿𝑂𝐺𝐼𝑁𝑉(𝑅𝐴𝑁𝐷(), 𝑚𝑒𝑎𝑛, 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛) location parameter.
Example:  Applications:

Give the Excel Built-In Formula for each  The log-normal distribution has most
applications to biology and finance, where
of the following distributions: these areas growth as important area to study
especially in epidemics and stock prices.
1)Lognormal distribution with 𝜇=2.1 and  The log-normal distribution curve usually used
𝜎 = 0.57 (JUNE 2019) to help better in determine the compound
return that stock which can expect to achieve
over a period of time.
𝑥 = 𝐿𝑂𝐺𝐼𝑁𝑉(𝑅𝐴𝑁𝐷(), 2.1, 0.572 )
 Other than used in financial and medical
sciences, lognormal distribution also can model
2)Lognormal distribution with 𝜇=1.4 and some of environmental phenomenon such as
𝜎 = 0.25 (DEC 2016) milk production by cows, amount of rainfall,
size distributions of rainfall droplets and the
volume of gas in a petroleum reserve.
𝑥 = 𝐿𝑂𝐺𝐼𝑁𝑉(𝑅𝐴𝑁𝐷(), 1.4, 0.252 )

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