What Log-normal distribution is
Log-normal distribution is a type of continuous probability distribution which is often used to model a random variable that is the product of many independent processes. It is also referred to as the Galton distribution or the Gibrat distribution.
Steps for Log-normal Distribution:
- Calculate the mean and variance of the data.
- Transform the data into its logarithmic form.
- Fit the logarithmic data to a normal distribution.
- Calculate the parameters for the log-normal distribution.
- Plot the log-normal distribution.
- Estimate the probability of a given value.
Examples
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Log-normal distributions are commonly used to model financial returns, such as stock prices, earnings, or dividends.
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Log-normal distributions are often used in reliability engineering, to model the distribution of system lifetimes.
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Log-normal distributions are also used to model the size distribution of certain natural phenomena, such as particles, grains, and even trees.
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Log-normal distributions are also used in epidemiology to model the distribution of certain diseases in a population.