Understanding Log Normal Distribution- Definition, Characteristics, and Applications

A log-normal distribution is a statistical distribution derived from taking the logarithm (typically the natural logarithm) of a set of values that are normally distributed. It is important in various statistical and financial analyses, especially in cases where the data being modeled cannot be negative. This article explores the properties of both normal and log-normal distributions, their significant applications, particularly in finance, and how to work with log-normal distributions using Excel.

Defining Normal and Log-Normal Distributions
Normal Distribution
A normal distribution is a symmetric probability distribution characterized by its bell-shaped curve. It is defined by its mean and standard deviation, and within a normal distribution:

Approximately 68% of the data falls within one standard deviation from the mean.
About 95% falls within two standard deviations.
Nearly 99.7% lies within three standard deviations.
This property of normal distribution makes it a fundamental concept in statistics, serving as the basis for many statistical tests and interpretations.

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