I should know the logic of this distribution by now, but I still don’t. Would someone be willing to explain what a lognormal distribution is and break it down to simplistic terms? Thanks!
A distribution is lognormal if the logarithm of that distribution is a normal distribution.
Think of a lognormal distribution as e^(normal distribution):
- Because e^x approaches zero as x approaches -∞, the lower (left) end of the lognormal distribution is zero.
- Because e^x approaches +∞ and x approaches +∞, the upper (right) end of the lognormal distribution extends to +∞.
- Thus, the lognormal distribution has positive skewness; it is skewed to the right.
That’s about as much as you really need to know about lognormal distributions.
This was covered in level 1. I remember the graph in the notes which visually represents what S2000magician said. Easiest way to remember is to go back and look at your Schweser notes and just remember the graph.